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£3k to spend? A 5% dividend yield from the FTSE 250 I’d buy in an ISA

The FTSE 250 remains volatile but PZ Cussons is a share I’m still tipping to thrive in the post-coronavirus world. Latest trading details from Reckitt Benckiser last week have reinforced my bullishness, too. The FTSE 100 company said last week that powerful sales of its Dettol and Lysol disinfectants had helped group sales surge more than 13% in the first quarter of 2020.

So what does this mean for Cussons? Well the same pandemic fears that’ve fuelled demand for Reckitt’s cleaning and self-hygiene products have blasted sales of the this FTSE 250 firm’s soaps higher, too. Cussons doesn’t sell any old soap, either. Its Imperial Leather and Carex brands are some of the most trusted out there by the world’s consumers.

Earnings forecasts might be toppling across share markets like dominoes right now. But expectations of robust demand for its shower gels, bath products, soaps, and hand sanitisers is why City analysts expect annual earnings to rise at Cussons in the upcoming fiscal year to May 2021. This is even despite some recent weakness for its beauty products business.

A FTSE 250 hero

Cussons in fact said last month that its Carex brand had enjoyed “a significant increase in demand towards the end of the [first] quarter” in the UK and Americas because of the Covid-19 pandemic. It said that it is witnessing “exceptionally high demand” for its Carex soaps and sanitisers and Imperial Leather right now, too.

Don’t think of this uplift as a short-term phenomenon, though. We remain in the height of the coronavirus crisis and sales of soap and similar products will likely trek steadily lower from current levels as pandemic fears recede.

I doubt, though that buying levels will return back to those of before Covid-19 outbreak. Individuals’ habits are already changing in response to the crisis and some new consumer trends emerging. It looks likely that, in the wake of millions of confirmed coronavirus infections and the severe social and economic implications of the outbreak, that a greater emphasis on cleaning rituals – for the home, for our offices, and for ourselves – will be here to stay.

Big dividend yields

It’s a point that Reckitt Benckiser chief executive Laxman Narasimhan underlined following last week’s first-quarter numbers. In a conference call he advised that the firm expects “a stepping up in both penetration and frequency in the case of hygiene.

Sales of its cleaning products might trail lower as the stockpiles built during recent rounds of panic buying unwind. But Reckitt’s head honcho believes that the longer-term outlook for hygiene labels like these remains robust in a post-pandemic landscape. It’s clearly good news for the likes of Cussons, too.

I’d happily buy this FTSE 250 share for my own Stocks and Shares ISA, in fact. For one it trades on a forward price-to-earnings (or P/E) multiple of below 15 times. This makes it much cheaper in this regard versus some of London’s other mighty fast-moving consumer goods (FMCG) manufacturers. And on top of this it carries a huge dividend yield close to 5%.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.