With this in mind, here are three such shares from the FTSE 250 I’d add to my ISA portfolio today.

TI Fluid Systems

TI Fluid Systems (LSE: TIFS) is the go-to option for car manufacturers looking for components to move fluids around inside their vehicles. Its operations stretch over 28 countries, giving the company great geographical diversification. However, the chief reason it’s caught my eye is that it looks very attractively-priced for the growth on offer.  

Right now, I can pick up the stock for under 16 times earnings. That already looks pretty decent value, relative to the levels of some stocks in the FTSE 250. And the price-to-earnings growth (PEG) ratio for FY21 is just 0.3. As a general rule of thumb, anything at or below 1.0 on this metric suggests the market is undervaluing the company. 

Of course, numbers never tell the full story. A key risk with TIFS is that it could be impacted by the ongoing issues with supply chains currently dogging the automotive sector.

Another thing worth mentioning is the ‘free float’. A relatively low number of shares (as a percentage of total equity) currently trade on the market. Theoretically, this could make TIFS’ price more volatile than other mid-tier stocks.

As long as I can remain focused on the long term, however, this looks like a good investment for me.

Redrow

As a (mostly) growth-focused investor, I’ve long regarded housebuilders as more suitable for a wholly income-focused portfolio. Perhaps I’ve been overly cautious. After all, some companies in this sector look temptingly priced for the growth they offer.

One example from the FTSE 250 is Redrow (LSE: RDW). We’ve seen a post-lockdown housing boom, but its shares now trade on less than 10 times earnings. More importantly, a forward PEG ratio of 0.5 is also very low. 

Of course, a key question now is whether recent activity will now decline as more people return to the office, others get laid off, and government incentives end. In fact, there are signs this is already happening. 

Still, I’m encouraged by RDW’s most recent update. Back in July, it reflected on having a “very strong” order book. Its sales market also “remains robust“. This leads me to suspect that buying for my ISA now could still work out well. 

Coats

A final ISA buy is industrial threads and fasteners manufacturer Coats (LSE: COA). A world leader at what it does, the business also has great earnings diversification, supplying products to industries such as apparel, transportation and telecoms.

Once again however, it’s the valuation that appeals. Coats’ forward PEG is bang on 1 at the moment. So, while not being as undervalued as the other two stocks mentioned, it feels like I’d be getting a good price based on this penny stock’s prospects.

Naturally, there are still risks here. A growing awareness of just how unfriendly fast fashion is for the environment could impact clothing sales and, by association, profits at Coats. Debt has also been creeping up over the years and could be worth watching.

On balance though, I’d still buy today. 

The post FTSE 250: 3 dirt-cheap growth shares I’d buy for my ISA appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats Group and Redrow. 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.

FTSE 250-listed Vistry Group (LSE: VTY), formerly Bovis Homes Group, trades at a low valuation of just 5.2 times forward earnings. No UK housebuilding share is cheaper today.

A dirt-cheap UK share I’d buy

Vistry has had a tough 2020, its share price falling by half since the start of the year. The March lockdown hammered the housebuilding sector, with sites closed and the sales market mothballed. Vistry saw first-half completions plunge from 3,371 to just 1,234, as revenue from housebuilding activities crashed from £854m to £344m.

Management has flagged up a stronger second half, with strong forward sales as pent-up demand for housing was unleashed. It has cut jobs, found synergies and suspended the dividend. This allowed management to shrink net debt from £476m in May, to £357.3m on 30 June.

Vistry still expects to make full-year profit before tax of between £130m and £140m in 2020. So why is this UK share so cheap? One reason may be that operating margins are lower than the housebuilder average, at 16% in 2019. This compares to 20.9% for the sector as a whole, according to figures from wealth platform AJ Bell. It still doesn’t pay a dividend, but management has promised one for 2021 with a progressive policy thereafter. Analysts predict Vistry will yield 4.9% next year, covered 3.88 times earnings.

Vistry has underperformed the housebuilder sector this year, and I’m hoping that buying at today’s low price could reward me handsomely when it plays catch-up.

Another top dividend and growth stock

Fellow FTSE 250 housebuilder Redrow (LSE: RDW) is the next cheapest major UK housebuilder share, trading at a dirt-cheap forward valuation of 7.4 times earnings. It also suspended its dividend but is expected to yield 4.1% next year, with plentiful cover.

Redrow enjoyed steady profit margins of 18.3% last year. Earnings looks set to be flat this year, but analysts predict that they will jump 73% next year. Naturally, that depends on the pandemic, but at least the government is keeping the housing market open in lockdown 2.0.

Management is looking forward to a stronger second half of the year, as it shifts its focus from London to its higher returning regional businesses, and higher-spec ‘Heritage’ range of period-style arts and crafts homes.

Today’s property market is underpinned by the government, through the stamp duty holiday and help to buy. There may well be further support to come, this time targeted at first-time buyers. This should help to keep sales ticking over, while extended mortgage holidays and furlough support should help to prevent repossessions.

I’m looking to buy dirt-cheap UK shares like these two before the recovery, rather than afterwards when they’ll be more expensive. I’m hoping that will boost my chances of building a big enough portfolio to retire early, if that’s what I want to do.

The post Top stocks for an ISA! I’d buy these 2 dirt-cheap UK shares to retire early appeared first on The Motley Fool UK.

More reading

• Are 76% off Vistry shares a once-in-a-decade opportunity?
• Down 43% in a month, what on earth’s going on with the Vistry share price?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

Card Factory

Management said the “general election and weak consumer sentiment ensured that the long-running trend of declining high street footfall was maintained”, filling investors with foreboding. The Card Factory share price has now halved in five years.

The £376m group still hails itself as “the UK’s leading specialist retailer of greeting cards, dressings and gifts”, but it’s in a tough sector. Yet has the market gone in too hard today?

Like-for-like sales fell 0.6% in the 11 months to 31 December, although total group revenue rose 3.6% as new stores opened. Cardfactory.co.uk is gaining ground, with online sales up 14.8% year-to-date, boosted by “enlarged gift and party ranges and increased customer awareness”. That growth is slower than 59.1% last year, but is still good and a new platform should further boost this in 2021 by enabling click-and-collect and in-store ordering.

Management has also fought back by boosting average transaction value, opening a raft of new stores, and rolling out its agreement with Aldi to supply a range of everyday cards to 440 UK stores. This month, it rolls out its card offering to The Reject Shop‘s 360 stores in Australia.

The “depressed sterling valuation” has also weighed on Card Factory, but at least that is now changing. High cost inflation, especially wages, remains a worry, and management says efficiency opportunities are finite, but it will present a “refreshed strategy” in April.

This stock is cheap, now trading at just 8.1 times forward earnings, with a forecast yield of 9.8%, covered 1.3 times. However, there is unlikely to be a special dividend this year, and the payout will be reviewed in April. Brave bargain hunters may be tempted, but with Amazon operating on its patch, I’m wary.

Redrow

Personally, I’d be looking for a stock in a healthier sector, and I am more bullish on housebuilders than retail. I remained bullish during the post-EU referendum slump, when the sector crashed on fears the uncertainty would hammer the housing market. I didn’t buy that theory, given the massive undersupply of property.

History has absolved me, with FTSE 250 listed Redrow (LSE: RDW) up 40% in six months, and 167% over five years, as it cannot build houses fast enough to meet demand. Following December’s election, it should get a further boost from plans to reduce planning red tape, and from an anticipated economic revival.

In a further tailwind, interest rates and mortgages are set to stay low or even fall further. Yes, Help to Buy is now on borrowed time, but demand is just too great for that to be a major concern.

My big worry is that Redrow’s earnings looks set to slow. After routinely posting double-digit growth, the current year sees a forecast 1% drop, and growth of just 2% in 2021. However, the Redrow share price trades at just 8.1 times forward earnings, despite its spectacular growth, while the 4.2% forecast yield is covered 2.9 times by earnings. It also boasts £124m of net cash. House price growth is holding up too. I’d buy it.

The post This 10% yielder has crashed 20% today. Does that make it an unmissable buy? appeared first on The Motley Fool UK.

More reading

• 2 bargain-basement income stocks to consider in an ISA

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Redrow. 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.

Earnings per share have grown at a compound annual rate of 42% since 2013, and it doesn’t look as if this trend is going to come to an end anytime soon. In Redrow’s results for the financial year to the end of June, it revealed a 13% year-on-year increase in completions and 10% increase in revenues. Earnings per share increased 8%, and cash generated from operations hit £124m, up from 2018’s £63m.

Commenting on the firm’s trading performance since the end of the reporting period, CEO John Tutte said: “Since the start of the new financial year, trading has been encouraging, and the demand for our homes is strong with reservations running ahead of last year.“

So, it looks as if fiscal 2020 is going to be another year of growth for the group as well. 

Cheap income

Based on the numbers in today’s earnings release, the stock is currently trading at a historical P/E of 6.1. Assuming Redrow’s earnings will grow further in fiscal 2020, we can assume this ratio applies for the current year too. On top of this, the firm announced an additional 20.5p per share dividend this year, taking the full-year cash return to 60.5p, a dividend yield of 9.4% on the current share price. 

I think it’s unlikely investors will see the same kind of cash return in fiscal 2020, but analysts have pencilled in a regular dividend yield of 7.6%. This level of income, coupled with Redow’s discount valuation, makes the stock too good to pass up, in my opinion. 

Cash champion

Another company that I think might also be worth your research time is PayPoint (LSE: PAY). The company, which primarily operates a payments network, helps customers convert cash into electronic payments and provides payment terminals for small shops around the UK.

This business is highly lucrative. Last year, the company reported an operating profit margin of 26% and a return on equity of 79%. There are only a handful of other stocks on the London market that reported returns higher than this. 

With its market-leading profit margins, PayPoint is highly cash generative. Last year the company generated free cash flow per share of 71p. Management is returning the bulk of this cash to investors with regular and special dividends.

City analysts believe the company will distribute 83 per share in dividends for its current financial year, which gives a dividend yield of 8.9% on the current share price. With net cash on the balance sheet of £38m, there’s plenty of capital there to support these special payouts. 

At the time of writing, shares in PayPoint are dealing at a forward P/E of 14.2. That’s not too dear, in my opinion, considering the firm’s healthy profit margins and cash generation. That’s why I think it might be worth taking a closer look at this business today.

The post Have £1,000 to invest? I’d buy these two dirt-cheap FTSE 250 dividend stocks appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended Redrow. 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.

Computer whizz

The stock is up a thumping 125% over the past five years and, after dipping last year, has staged a dramatic recovery to grow 45% year-to-date.

The group, which offers technology expertise to corporate and public sector organisations, is up 3.5% today despite reporting a 2.3% fall in reported interim pre-tax profits. Investors preferred to focus on bullish comments from CEO Mike Norris, who said the board “expects that the full year 2019 profit growth, in monetary value, will be the best in the company’s history.”

Norris said 2018’s first half “presented a very difficult challenge to beat,” whereas “the opposite is true of the second half.” So if the group delivers a good H2, the Computacenter share price could fly even higher.

Acquisition happy

First-half revenues did increase 20.8% to £2.43bn, while adjusted profits before tax rose 2.7% to £53.5m. However, these year-on-year figures included £416.8m of revenues and £1.3m of adjusted profit before tax from acquisitions made since 30 June 2018.

The £1.66bn group’s UK operations disappointed, with revenues down 7.8%, but France delivered 18.9% growth, and Germany grew 4%. Last year’s US acquisition underachieved, which Norris put down to rising operational costs and investment, and a decline in operating margins. However, he expects a more significant second half contribution.

Norris added that industry momentum remains positive as more businesses invest in technology to digitalise, and this is helping the group improve its operational capacity.

Computacenter has a history of delivering steady earnings growth and City analysts expect 8% this year, followed by a more modest 4% in 2020. It’s a little bit pricey, trading at 16.5 times earnings. The forward yield is 2.4%, but generously covered 2.5 times and management is progressive, with the interim dividend per share hiked 16% from 8.7p to 10.1p today. As Kevin Godbold recently pointed out, the dividend has increased 50% in the last five years.

All systems Red

You can get more generous dividends on the FTSE 250. For example, housebuilder Redrow (LSE: RDW) has a whopping forecast yield of 8.9%, nicely covered 1.8 times by earnings. That kind of payout is par for the course in the sector, as is the low valuation, heavily discounted due to Brexit fears. Overly discounted, I would say, because I think demand for UK residential property is so strong, given the rising population, it can survive even a no-deal departure.

With the Redrow share price trading at just six times forward earnings, any problems seem to be very much in the price.

Bargain price

The £2bn group has just delivered four consecutive years of high double-digit earnings per share growth, ranging from 22% to 54%, although analysts are anticipating a 2% drop this year, and just a 1% increase the next.

Yes, the government-funded Help to Buy is set to be scaled back in 2021. Yes, house price growth is finally slowing. Yes, Brexit. However, I still believe the housebuilding sector represents a terrific bargain at today’s price, and I’m not the only one. Royston Wild reckons Redrow is one hell of a profits and cash creator. Isn’t that what we’re all after?

The post The State Pension isn’t enough! I’d top it up with these 2 FTSE 250 growth and income stocks appeared first on The Motley Fool UK.

More reading

• 2 top stocks to consider buying after this week’s FTSE carnage

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

Let’s make no bones about it. A blend of snail-like property price growth, plummeting tax relief, increased operating costs (whether through the new Tenant Fees Act or new regulations related to HMOs) and a gradual transference of rights from landlord to tenant is making life really quite hellish for property investors today.

The subsequent impact of these measures on landlords’ wallets is perfectly illustrated by latest research on the sector just released by BondMason. According to the property investment experts, returns for the average private landlord have risen a rather pathetic 1.8% over the past 12 months.

Chief executive of the firm Stephen Findlay comments that “the uncertainty in the current UK economic climate has continued to weigh on the sector.” And with the political and economic fog because of Brexit as opaque as ever, I’m certainly not expecting buy-to-let returns to pick up any time soon. And neither does BondMason, which is predicting “further instability” in the coming months.

Get better returns here

The question is why anyone would be content with sub-2% returns — paltry gains which are likely to persist for god knows how long given all of the reasons outlined above — when there’s an opportunity to make some seriously big returns elsewhere?

For those seeking exposure to the property market, I consider Redrow (LSE: RDW) to be a much better way of making money. Total returns here, by comparison, have surged by a mighty 11% over the past 12 months, even though the housebuilder’s share price has basically flatlined in that time.

Don’t be fooled, though. Poor investor interest doesn’t reflect the ongoing strength of trading conditions in the newbuild market, an environment which is allowing Redrow to supercharge ordinary dividends and shell out some enormous supplementary dividends as well.

Stunning dividend yields

The FTSE 250 firm is one hell of a profits and cash creator and, thanks to a combination of über-favourable mortgage products and a lack of existing properties entering the market, it looks set to continue making terrific progress on both fronts. A further flurry of positive trading updates from across the sector in recent weeks certainly suggests that it should.

No wonder City analysts are expecting more dividend growth, meaning Redrow still carries a forward yield a shade off 10%.

That’s not to say returns will remain as strong as they have over the past year, given investor tension over Brexit and the subsequent impact this may have on the share price in the near term. I would still happily load up on Redrow given the scale of Britain’s housing shortage, a situation that should play into the builder’s hands and generate terrific returns for many years to come.

The post Buy-to-let returns have sunk below 2%! So I’d rather buy this 10%-yielding property stock appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

The FTSE 250 stocks I’m going to look at today are good examples of this, in my opinion. All three face some kind of risk. But each one also has a solid track record, strong finances and a forecast dividend yield of more than 7%. Is now the right time to buy?

Reputation risk

The share price of oil services group Petrofac (LSE: PFC) has fallen by more than 50% since the Serious Fraud Office opened a bribery investigation into the firm in 2017. So far, only one former employee has been prosecuted, but the investigation remains ongoing.

As far as I can see, the first risk facing investors is that the company will eventually be prosecuted and hit with a big fine by the SFO. The second risk is that damage to its reputation could make it harder to win new work.

A trading update today seems to hint at this problem. Chief executive Ayman Asfari says that although trading is in line with guidance, the firm is facing “challenges in Saudi Arabia and Iraq”. These are the two countries involved in the SFO investigation.

The rate of new orders seems to be falling, with new orders of $1.7bn so far this year, compared to $1.8bn during the same period last year.

However, Petrofac shares now trade on about six times forecast earnings, with a 7.1% yield. If was to bet on this situation, I’d guess that the firm will weather this storm and return to growth. If I’m right, the shares could be good value at around 400p.

Safe as houses?

Big housebuilders continue to report record profits and pay generous dividends. FTSE 250 firm Redrow (LSE: RDW) is no exception. Pre-tax profit rose by 21% to £380m last year and has continued to rise this year. In April, shareholders were rewarded with a 30p per share cash return on top of the regular dividend.

RDW shares look affordable to me, trading at 1.2 times net asset value and on around six times forecast earnings. The total dividend payout (including one-off payments) for the current year is expected to provide a yield of more than 9%. The forecast dividend yield for 2019/20 is 7.4%.

What’s the risk? Well, many believe the UK housing market may be slowing. And the planned end of Help to Buy in 2023 could put pressure on profits.

My view: I’d be happy to buy Redrow today and then buy more shares at a lower price during the next market downturn.

Are you insured?

Motor insurer Sabre Insurance (LSE: SBRE) specialises in providing cover for high-risk drivers. These pay much bigger premiums.

This company’s smaller size and specialist focus has helped make it highly profitable. In 2018, only 70% of its premium income was needed for operating costs and claims. The figure for most mainstream rivals was over 90%.

However, growth was non-existent in 2018 and profits are expected to be flat again this year. Rising repair costs are also a problem.

Despite all of these risks, I’d suggest that this company’s specialist niche and high profit margins could make it a good buy at current levels. Trading on 13 times 2019 forecast earnings and offering a 7.7% yield, the shares look temptingly priced to me.

The post 3 FTSE 250 dividend stocks with yields of 7%+ I’d buy today appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

With that in mind, here are two mid-cap stocks that appear to offer a potent mix of a relatively appealing income return, as well as the potential for capital growth over the long run.

Games Workshop

Designer, manufacturer and retailer of miniature wargaming products, Games Workshop (LSE: GAW), released an encouraging trading update on Friday. The company has seen the momentum in the earlier part of 2019 continue through into the last couple of months. This means sales for the 2019 financial year are expected to hit £254m, with profit before tax due to be at least £80m.

During the 2019 financial year, which ended 2 June, the company paid a dividend of 155p per share, that’s an increase of 23% on fiscal 2018. It means the company yielded 3.3%.

Since it has an ongoing policy of distributing surplus cash to shareholders when available, its continued strong performance suggests further improvements to its dividend payments may be ahead over the long run.

With Games Workshop having a strong position within what remains a fast-growing market, it could generate impressive returns over the coming years. Although further pressure on consumer confidence may affect its performance in the near term, it could deliver a rising dividend in the long run.

Redrow

While the housebuilding sector has been highly unpopular among investors in the last few years, the performance of Redrow (LSE: RDW) has been impressive. The FTSE 250-listed housebuilder has posted double-digit earnings growth in each of the last five years, which suggests its business model is sound.

Looking ahead, demand for new homes is expected to remain high. A supply shortage, the wide availability of finance through mortgages, and the government’s Help to Buy scheme could mean the sector is set for a period of further growth.

Certainly, there are a variety of political and economic risks ahead. But with Redrow trading on a price-to-earnings (P/E) ratio of 6.2, it appears to offer a wide margin of safety. Furthermore, its dividend yield of 5.3% is covered three times by profit, which also suggests it’s highly sustainable.

Although the housebuilding sector may remain unpopular among investors over the short run, in the long term companies such as Redrow could offer high income returns and the prospect of significant capital growth. As such, I think now could be a good time to buy a slice of the business.

The post Forget a Cash ISA! I’d buy these 2 FTSE 250 dividend growth stocks right now appeared first on The Motley Fool UK.

More reading

• How much do you need in a Stocks and Shares ISA for a £10,000 second income?
• £20,000 invested in a Stocks and Shares ISA 5 years ago is now worth…
• £3k to invest? 2 UK shares to consider buying in a Stocks and Shares ISA in 2026
• 3 easy steps to target a £1,000,000 Stocks and Shares ISA!
• How I’m using top dividend stocks to try and turn £513.86 a month into a million

Peter Stephens owns shares of Redrow. The Motley Fool UK has recommended Redrow. 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.

Why? Well, the murky outlook for the UK retail sector as the Brexit problem drains consumer spending power and shopper confidence, that’s why. Latest data from the British Retail Consortium illustrated these conditions perfectly as it announced total non-food sales in the three months to April fell 0.2%, flipping from the 12-month average increase of 0.2%.

Sales stresses to persist?

So what can we deduce from N Brown’s final results unpackaged in late April? Adjusted pre-tax profit for the 12 months to February came in better than expected at £83.6m, up from £81.6m in fiscal 2018 and this defied expectations that it’d slip year-on-year to around £80m, prompting that aforementioned share price spurt.

However, in my humble opinion this was certainly no reason to break out the bubbly. I’m far more concerned by news that product sales fell 5.6% in the period, a result that caused revenues at group level to drop 0.8%. It was only another strong sales performance from its financial services arm which stopped the retailer’s top line from plummeting.

That said, I expect the resilience of its credit division to provide just a temporary sticking plaster as a tough economic environment and intense competition amid Britain’s clothiers dials up the pressure for N Brown’s core operations.

City analysts expect the Jacamo and Simply Be owner to pay another 7.1p per share dividend for the year to February 2020, a forecast that creates a chunky 5% yield. This predicted payout doesn’t move me, though, given that the number crunchers are expecting earnings to keep sinking (a 2% drop is currently tipped for this year).

So forget about the big yield and cheap valuation, illustrated by N Brown’s forward P/E ratio of 6.7 times. It’s a company whose share price is in danger of moving sharply lower again and it should be avoided, in my opinion.  

Lucky red

I’d much rather use any cash earmarked for this business and plough it into Redrow (LSE: RDW).

The homebuilder also carries a 5% dividend yield for the current fiscal year to June, underpinned by City predictions of more earnings growth (of 4%, to be exact), and if recent evidence on the health of the housing market last week is anything to go by, the FTSE 250 firm appears in great shape to keep thriving beyond the immediate future.

As well as Barratt putting out another great set of trading numbers, data from Halifax showed property prices jumped 5% year-on-year in the three months to April, the strongest rate of growth since February 2017. These developments follow on from Redrow’s brilliant interims of February in which it advised of record revenues and profits, and so it comes as no surprise I’m expecting another blowout release when numbers for the full fiscal year come out.

Oh, and right now Redrow provides better value than N Brown too, illustrated by its prospective P/E ratio of 6.5 times. So give the clothes retailer a miss and buy into the builder, I say, a company I expect to keep paying big dividends for many years ahead.

The post Should you buy these 5%-yielding bargains, or avoid them like the plague? appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Royston Wild owns shares of Barratt Developments. The Motley Fool UK has recommended Redrow. 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.

Problems first started to emerge last May. Management had expected the launch of the Japanese government’s My Number ID card programme to drive a significant uplift in revenues its Japanese division. But this growth failed to materialise and, as a result, Photo-Me issued a profit warning and announced that it was restructuring its Japanese business.

Further problems 

Nearly 12 months on and the company’s situation has improved slightly, although other headwinds are now starting to emerge. 

According to the company’s latest trading update, following last year’s restructuring, the Japanese business is performing strongly and so are Photo-Me’s operations in continental Europe.

But the UK market has now become the group’s problem child. According to management, trading has become more “challenging than expected” thanks to Brexit uncertainty. 

The slowdown began at the beginning of last year, and management was expecting sales to pick up in the second half. This recovery has not happened. As a result, “the group now does not expect to achieve a recovery in order levels before the end of the current financial year.“

With the slowdown expected to continue, management now believes profit for the financial year ending 30th April will now be at least £42m, below previous guidance of £44m.

Dividend confirmed 

The one piece of good news Photo-Me’s shareholders have received over the past 12 months is that the company is committed to maintaining its current dividend. At current prices, the stock yields 10% and is supported by a cash-rich balance sheet. 

Despite management’s dividend commitment, I’m no longer as confident on the outlook for the company as I used to be and I don’t think it’s worth chasing this yield. The distribution is only covered 1.1 times by earnings per share, indicating the payout could be for the chop if profits continue to slide.

On the other hand, I’m much more optimistic on the outlook for homebuilder Redrow (LSE: RDW).

Cheap income 

There is lots to like about Redrow. For a start, the stock is outrageously cheap. It’s changing hands for just 6.8 times forward earnings at the time of writing. That’s without adjusting for the group’s cash balance, which stood at £100m at the end of 2018.

Then there’s the company’s dividend yield. City analysts have pencilled in a total dividend per share of 48p for the group’s fiscal 2019, and earnings per share of 89p, implying a dividend cover of 1.9.

In total, I estimated the distribution will cost the company around £123m, which should be easily covered by free cash flow. Indeed, last year the group generated nearly £200m of free cash more, which was more than enough to cover the dividend and pay down £85m of debt at the same time. 

Now that the business is debt free, it can afford to return much more cash to investors. I think that’s exactly what management will look to do over the next few years.

The post A 10% yield I’d sell to buy this cheap FTSE 250 income stock appeared first on The Motley Fool UK.

More reading

• 1 FTSE 250 stock I like and 1 I’ll avoid after the stock market correction
• Is April 2026 a great time to buy Lloyds shares?
• Want to aim for a £500 second income each month? Here’s how much it takes
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• How are Diageo shares looking in April 2026?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Redrow. 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.