The FTSE 250 is usually the hunting ground of growth investors. Anyone after income stocks normally focuses on the FTSE 100, but they’d be missing a trick.

Yes, companies on the FTSE 100 are larger so their capacity to pay dividends is greater. And the smaller size of the FTSE 250 shares gives them more scope for growth. But income hunters might be surprised to learn that over 50 FTSE 250 shares currently yield over 6% — led by Diversified Energy with a whopping 18.36% trailing yield.

As I’m already overweight in energy shares, I’ve skipped over DEC in favour of specialist mortgage lender OSB Group (LSE: OSB) and real estate investment trust (REIT) Tritax Eurobox (LSE: EBOX). Both stocks sit on the FTSE 250, have an appealing dividend of over 8% and great potential for growth. Plus they’ve both had a tough year after interest rate revisions sent shares tumbling.

First up, OSB

Down 26% this year, the first thing you notice looking at the share price performance chart is the cliff-like fall in the first week of July.

Skittish buy-to-let mortgage holders — who make up the bulk of OSB’s loan book — refinanced quickly after the end of their teaser rates, which was bad news for profits. An unscheduled update to the market on 6 July, revealing a £160-180m adverse effective interest rate adjustment would be seen in OSB’s first-half figures, sent the share price tumbling 30%.

The following set of results were in fact better than expected, but didn’t prompt the share price recovery I anticipated.

Interest rates look stable for now and the early summer panic represents a buying opportunity in my view. Analysts have given a 700p target price compared to yesterday’s close of 303p. I think a 131% gain is optimistic, but there’s certainly great potential and the generous dividend will make the wait for profit palatable.

Interest rate fears have also hit Tritax Eurobox shares. The REIT owns warehouses and logistics hubs across continental Europe, making it vulnerable to increased cost of borrowing. Down 21% since the new year, I believe interest rate worries have knocked the share price back as far as they will.

Exposure to Europe

The basic economics of supply and demand suggest Tritax Eurobox is in a great place for a comeback. Shoppers are buying online more than ever, and the rising use of automation and robotics all point towards ‘big box’ logistic hubs and warehouses becoming increasingly vital to the retail market. A dividend yield of 8.75% is the cherry on top and one I’m confident will be maintained.

OSB and Tritax Eurobox are by no means the only bargains for income seekers lurking in the FTSE 250. But for me, they’re the ones with the strongest investment case.

Tritax Eurobox would bring much needed European exposure to my portfolio with a solid dividend and a likelihood of long-term gains. But I’m an impatient investor and find the short-term expectations for OSB are hard to ignore. Without spare cash to invest, I’m considering selling some of the less-compelling stocks in my portfolio to fund a purchase.

The post Two FTSE 250 income stocks flying under the radar appeared first on The Twelfth Magpie.

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Georgia Tivadar has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Sitting at 149p, Barclays (LSE: BARC) shares are hard for me to resist. I can’t find a single FTSE analyst who rates the shares as a ‘sell’, and higher-end forecasts of 320p would give today’s investor a 115% return. Even if the top estimates for the FTSE 100 giant are over-eager and we look at an average, we see a target price of 238p.

We all know analysts have been wrong before — and will be again — which is why we need to dig deeper.

Barclays pays a solid dividend. This year it’s 7.25p (5%), and the stringent capital requirements from the regulator mean Barclays — along with other UK banks — is in a conservative position regarding cash reserves.

So what’s been pushing the share price down?

Two sets of issues have been weighing on the share price. Poor sentiment towards the banking sector in general, and negative commentary on Barclays in particular.

Negative is understating the issue. Barclays has had some absolutely terrible press this year.

In the last few days, there’s been speculation that hundreds of jobs are due to be cut soon as part of an effort to trim costs. This comes hot on the heels of a slating from climate-change campaigners targeting the bank due to its support of carbon-heavy industries. The AGM was disrupted in May, and in July celebrities including Emma Thompson complained the bank was profiting from “climate chaos” and shouldn’t be allowed to sponsor Wimbledon.

Just last month it hit the headlines again, as supporters of the National Trust petitioned the charity to stop banking with Barclays.

Unsurprisingly this commentary has been a turn-off for investors.

But the bank isn’t taking this lying down. Barclays has made a significant number of sustainability hires and is on the hunt for a director to champion its climate efforts.

It is promoting the fact it’s provided £99bn in green financing since 2018, and doubled down on its commitment to hit net zero by 2050.

So what are the issues facing the financial sector as a whole?

UK banking stocks have been creeping downward for years. Government regulation meant holding more capital and tighter scrutiny, loss of income through the closure of investment banking units, and increased competition from fintech banks have plagued the sector.

Again there’s reason for optimism now.

The regulatory changes have been made and the cash reserves accounted for in the balance sheets. More importantly, interest rates have risen – a move that has historically been good for banks, as they can widen the margin between the rates offered to savers and to those charged on money loaned to customers.

Rates could even rise further if inflation warnings prove correct. In fact, a Monetary Policy Committee member due to vote on a further rate rise later this month has already signalled her support for a ‘higher for longer’ position.

All in all, I believe a corner has been turned for banks in general but Barclays in particular.

This is why I’m looking to add what I believe is the FTSE 100’s best bargain to my portfolio.

The post The FTSE 100’s best bargain? Barclays shares expected to gain 57% appeared first on The Twelfth Magpie.

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Georgia Tivadar has no current position in the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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.

There’s a lot to worry investors holding British American Tobacco (LSE: BATS) shares. But it doesn’t mean bargain hunters and income-seekers should necessarily stay away.

Ignoring the appealing dividend yield for the moment, the fundamentals of this recession-resistant giant are appealing to me.

Firstly, it is finally out of Russia. There’s been criticism that this has taken far too long — it’s been 18 months since Ukraine was invaded — but the Russian market accounted for approximately 2.7% of group revenue and 2.5% of group adjusted profit from operations. Finding a buyer for such an operation — and securing a decent price when the world knows you’re a forced seller — was never going to be a quick and easy process.

A dividend that’s hard to ignore

That dividend. Yes, interest rates are on the rise and cash is holding more appeal than a few months ago. But it’s impossible to ignore an 8.9% dividend.

With all dividends, the value is in the future not the past. So we can’t just look at what they’ve paid in the past, we need to know if they can pay in the future. Through this lens, British American Tobacco is a solid choice. It has made dividend payments a priority in the past, and with the cash influx from the sale of the Russian arm, it has the cash to continue this trend.

We’ve seen two dividend payments so far this year and can fairly expect the same again. The first quarter’s payment of 57.25p per share was generous in March when the shares had just traded for over 3,000p. Getting the same income now the shares are hovering around 2,585p feels like a steal.

So the income is pretty tempting but it’s the capital return that really appeals to me.

Obscenely good value

The price-to-earnings (P/E) ratio alone would merit a lot of interest from value investors. When the market value price per share is less than 20 times the company’s earnings per share, we know we’re on comfortable ground. Any P/E ratio under 15 is interesting to a value investor and under 10 is rare.

British American Tobacco shares are currently trading on a P/E ratio of 6.6x.

Imperial Brands, its closest rival, is trading on 9.3x. Not unappealing but its half-hearted forays into smokeless alternatives make me reluctant to reach for my wallet.

Smokeless options are becoming more important in the tobacco sector. The UK government is aiming to be ‘smoke-free’ by 2030, so without adaptation these sin stocks will lose a significant market. British American Tobacco has been leading the transition into vaping and owns Vuse, the number one vaping brand in the world.

Buying the shares?

Sin stocks like this aren’t for everyone. Aside from the morality of investing in alcohol, gambling or tobacco, these businesses are at risk of tightening legislation that could throttle or totally wipe out their core business.

It’s a large shadow for British American Tobacco to operate under. But the dividend, product diversification and shockingly low P/E ratio mean I’m still tempted to add to my portfolio.

The post British American Tobacco shares: bad for my health but great for my wealth appeared first on The Twelfth Magpie.

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Georgia Tivadar has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. and Imperial Brands Plc. 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.