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Have £1,000 to invest in the FTSE 250? Here are 2 dividend stocks I’d buy in an ISA today

Peter Stephens — Sun, 21 Jul 2019 08:58:38 +0000

While the FTSE 250 may not be an obvious place to invest for income-seeking investors, the index currently has a wide range of enticing dividend stocks with growth potential.

Of course, in some cases they may face an uncertain future. This could mean that they display heightened share price volatility versus their larger peers.

But with these two mid-cap shares having high yields, significant growth catalysts and fair valuations, now could be a good time to buy them for the long term.

Centamin

Gold miner Centamin (LSE: CEY) released an encouraging production update last week. The company is on track to meet its production guidance for the current year, which could lead to improving investor sentiment.

While the gold price may exhibit further volatility in the coming months, it could provide a store of wealth for investors who are cautious about the prospects for the world economy. Since the global trade war is ramping up and interest rates in the US could fall before they rise, the gold price may enjoy a tailwind over the medium term as investors increasingly seek defensive assets.

With Centamin currently having a dividend yield of around 5.5%, the stock could have increasing income appeal. Its dividend is covered 1.3 times by profit, while it has no debt, a strong cash position and the potential to deliver robust production over the long run. As such, for investors who are seeking to diversify their portfolios and gain exposure to the precious metals sector, it could prove to be a worthwhile purchase in the long run.

Bovis

Also offering a mix of dividend and growth potential is FTSE 250-listed housebuilder Bovis (LSE: BVS). The company is making progress in improving the quality of its homes, with customer feedback being increasingly positive according to recent updates. This could help to rebuild the company’s reputation after the customer redress issues of recent years.

Of course, the housebuilding sector could experience a period of uncertainty. While demand for new homes is robust at the present time, a change in the Help to Buy scheme and interest rate rises may lead to increasing difficulty in getting on to the property ladder for first-time buyers.

However, with Bovis currently trading on a price-to-earnings (P/E) ratio of 9.4, it seems to offer a wide margin of safety relative to many of its index peers. Furthermore, its dividend yield of 9.8% for the current year suggests that it may offer a relatively impressive income return as its financial performance improves.

As such, for investors who are able to overcome short-term risks from an uncertain period for the UK economy, Bovis may offer an enticing long-term income outlook. Its current management team seems to have the right strategy to deliver growth, while potentially avoiding the customer service issues experienced in previous years.

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Peter Stephens owns shares of Centamin. 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.

Two overlooked FTSE 250 dividend growth shares I’d buy today and hold forever

Peter Stephens — Tue, 21 May 2019 10:24:39 +0000

Buying dividend growth stocks in the FTSE 250 could be a worthwhile strategy over the long run. Certainly, there may be higher and more reliable income returns available in the FTSE 100. But mid-cap shares that are posting fast-rising dividends could offer capital growth, as well as income returns, due to improving investor sentiment.

With that in mind, here are two FTSE 250 shares that could offer a high rate of dividend growth. As such, now could be the right time to buy them for the long term.

Electrocomponents

Electronic and industrial supplies distributor Electrocomponents (LSE: ECM) released a positive set of results for the 2019 financial year on Tuesday. The company’s revenue increased 10.5% to £1,884.4m, while adjusted operating profit moved 20.8% higher to £220.3m. It was able to post strong market share gains, while its Digital and RS Pro segments outperformed the wider business.

With the company having raised dividends per share by around 7% per year in the last five years, it has a solid track record of improving income returns. Since its dividends are covered 2.4 times by net profit, there appears to be scope for them to rise at a fast pace in the coming years.

With Electrocomponents set to invest in its scalable infrastructure, it has the potential to further improve its efficiency and differentiate itself from sector peers. While also managing its costs in a disciplined manner, this could lead to an improving financial outlook that leads to a rising dividend.

While the stock may yield just 2.5% at present, it appears to offer an improving income outlook alongside the potential to generate impressive capital growth.

Bovis

Housebuilder Bovis (LSE: BVS) is part-way through delivering a revised strategy that’s expected to lead to a stronger business that offers a more sustainable growth outlook for the long run.

It has slowed the rate of growth in completions, instead focusing on improving its customer satisfaction rating. Progress is being made in this area, which could mean it’s able to ramp-up the number of completions over the medium term.

With the stock having a dividend yield of over 10% when its special dividend is included, it already has significant income appeal. Although there may be uncertainty ahead for the housebuilding sector as a result of the economic and political risks facing the UK, a price-to-earnings (P/E) ratio of 9 suggests investors may have factored in many of these risks.

As such, with Bovis having a low valuation and a high income return, it could offer improving total returns. With policies such as Help to Buy expected to continue over the medium term, the company may also benefit from trading conditions that are stronger than many investors currently anticipate. This could lead to an even higher rate of dividend growth, and a more appealing income investing outlook.

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Peter Stephens 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.

Forget buy-to-let! Consider these bargain property investments instead

Peter Stephens — Wed, 26 Sep 2018 10:20:10 +0000

While the long-term prospects for the UK housing market may be positive, capitalising on it through property shares may be a better idea than undertaking a buy-to-let. Certainly, low interest rates make borrowing more attractive. But with buy-to-lets lacking diversity and being illiquid, they also carry significant risks.

At the same time, a number of property-related shares in the FTSE 100 and FTSE All-Share seem to offer good value for money at the present time. Here are two prime examples that could deliver superior higher risk/reward opportunities than a buy-to-let.

Improving outlook

Reporting on Wednesday was property investment and development company Helical (LSE: HLCL). It released a trading update which highlighted the good progress being made on its current development pipeline. It has completed the second and final phase of its London development, The Bower. It will also complete the first residential phase at another of its London developments, Barts Square, by the end of November.

The company has made encouraging letting progress during the period across its London and Manchester portfolios. The recent disposal of The Shepherds Building has improved its financial strength. The potential to recycle the equity released from the sale into new projects could lead to higher levels of profitability.

Looking ahead, Helical is forecast to post a rise in earnings of 46% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of 0.7, which suggests that they offer good value for money. As such, now could be the right time to buy them for the long term.

Successful turnaround

Also offering the potential for high capital returns in the long run is FTSE 250 housebuilder Bovis (LSE: BVS). The company has employed a revised strategy in the last couple of years that has focused on a slower rate of growth, with an increasing focus on customer satisfaction and quality. This has been a sound move, since it was experiencing significant levels of complaints from customers regarding issues with new-build properties.

With a stronger foundation now in place, the company has the potential to ramp up its number of completions over the medium term. This is expected to contribute to a rise in earnings of 42% in the current year, followed by additional growth of 15% in the next financial year. Despite such as strong rate of forecast growth, the stock has a PEG ratio of just 0.8 at the present time.

Clearly, Brexit poses a risk to the near-term prospects for the business. Consumer confidence is weak, and this may lead to some uncertainty in the housing market. However, so far house prices have been robust, while demand for new-build properties has been high. This suggests that the imbalance between supply and demand may continue over the long run, leading to higher levels of profitability for housebuilders. As such, now could be the right time to buy Bovis, with it seeming to offer a wide margin of safety.

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2 FTSE 250 shares that could help you enjoy a millionaire’s retirement

Peter Stephens — Thu, 05 Jul 2018 12:20:27 +0000

Buying shares in companies that have failed to meet expectations in the recent past can be a risky move. It can take time for them to recover and, in some cases, they may fail to reach their previous share price highs.

However, turnaround shares can also offer high rewards. If they’re able to put in place a revised strategy which resonates with the stock market and leads to improving financial performance, wide margins of safety at purchase can lead to high returns further down the line. With that in mind, here are two stocks with recovery potential that could help to boost your portfolio returns.

Improving performance

Reporting on Thursday was housebuilder Bovis (LSE: BVS). The company’s performance in the first half of the year has been encouraging, with 1,580 completions slightly ahead of its expectations, and 4% up on the same period last year. It has experienced robust trading conditions with good demand for homes across all of its regions and firm underlying pricing. It continues to expect to record a 23.5% gross margin and a 25% return on capital employed over the medium term.

The company’s Home Builders Federation (HBF) customer satisfaction score is trending at well above 80%, which would indicate a 4-star rating. This would represent a strong turnaround for the business after the disappointing customer satisfaction levels of recent years. They led to compensation payments, which hurt the company’s financial performance and investor sentiment.

Looking ahead, Bovis is forecast to post a rise in earnings of 40% in the current year, followed by further growth of 15% next year. With a price-to-earnings growth (PEG) ratio of 0.8 and a dividend yield approaching 9%, it seems to offer significant total return potential.

Profit growth

Also offering recovery potential over the medium term is specialist lender Provident Financial (LSE: PFG). It has faced a hugely challenging couple of years, with a change in strategy causing severe disruption to its consumer lending division. Customer satisfaction declined and the company’s financial prospects were downgraded.

Now though, a refreshed strategy and a change in personnel seems to be creating a brighter future for the business. It’s expected to record a rise in earnings of 13% in the current year, followed by further growth of 30% next year. This puts it on a PEG ratio of 0.3 and suggests that it offers a wide margin of safety at a time when the FTSE 250 is trading at relatively high levels.

Certainly, risks remain to Provident Financial’s future progress. Regulatory risk could hurt investor sentiment, as well as its financial prospects. But with what seems to be an improving business model and a low valuation, it could offer significant growth potential over a long-term time period. As such, now could be the perfect time to buy.

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My top FTSE 250 buys for an instant starter portfolio

Peter Stephens — Thu, 03 May 2018 10:20:31 +0000

While the FTSE 250 may be more volatile than its big brother the FTSE 100, it has historically offered higher returns. For example, in the last five years it has gained 46% versus 15% for the FTSE 100.

As such, many investors may be considering a switch of at least part of their portfolios to the mid-cap index. This could prove to be a sound move – especially for investors who are able to buy and hold over a multi-year time period.

With that in mind, here are two FTSE 250 stocks which seem to offer a mix of income, growth and value potential. They could deliver impressive total returns in the long run.

Impressive performance

Thursday saw insurance company Esure (LSE: ESUR) releasing a first quarter trading update. The business was able to increase gross written premiums by 18% versus the same period of the prior year. There was strong growth in Motor, with gross written premiums rising by 21.1%. And while the Home segment suffered from challenging weather conditions, after adjusting for them, the group remains on track to deliver a similar combined operating ratio to 2017.

Looking ahead, Esure is forecast to post a rise in its bottom line of 11% in each of the next two financial years. Despite an impressive growth outlook, it trades on a price-to-earnings growth (PEG) ratio of just 1, which suggests that it could be undervalued at the present time.

In addition to a positive growth outlook, the company also offers a sound income future. It has a dividend yield of 6.5% at the present time. With dividends being covered around 1.5 times by profit, there seems to be scope for them to rise at a brisk pace. This mix of income, growth and value potential could mark Esure out as a strong investment opportunity within the FTSE 250.

Improving performance

Also offering a favourable risk/reward ratio at the present time is housebuilder Bovis (LSE: BVS). The company has experienced a tough period, with customer redress costing it both financially and in terms of its reputation. However, under a new CEO and with a refreshed strategy, the company appears to be making a solid comeback which could catalyse its share price performance.

For example, in the next two financial years it is expected to report a rise in its bottom line of 40% and 14%. These figures suggest that at a time when many of the firm’s sector peers are experiencing modest earnings growth, Bovis could deliver a much stronger outlook for its investors. And since it trades on a PEG ratio of 0.4, it seems to offer a wide margin of safety in case external challenges increase.

The company’s dividend yield of 8.2% is one of the highest in the FTSE 250 at the present time. While there are income shares which offer greater certainty and less risk, the return potential on offer from Bovis means that it could be a worthwhile buy for the long term.

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Buying these two stocks could help to make you a millionaire retiree

Peter Stephens — Thu, 01 Mar 2018 14:12:42 +0000

The prospects for the UK economy may be uncertain at the present time. Brexit talks are ongoing and there’s significant debate about various issues including the Irish border and the customs union. As such, it wouldn’t be surprising for confidence in the UK economy to come under a degree of pressure.

However, one sector which appears to have a positive outlook is housebuilding. Government support alongside lower interest rates could keep demand levels healthy, while supply continues to be exceptionally low. As such, these two housebuilders could be worth buying now for the long run.

Ongoing recovery

Reporting on Thursday was Bovis (LSE: BVS). The company has experienced a hugely challenging few years, with customer redress hurting its financial performance. However, it now has a new management team in place and they seem to be delivering improved performance.

Certainly, its revenue and profitability declined in 2017 versus the prior year. However, a reduced number of completions was a key cause of this, with Bovis deciding to focus on customer satisfaction rather than just profitability. This strategy seems to be working, with the stock now on track to recover a 4-star HBF rating.

Looking ahead, Bovis is expected to report a rise in its bottom line of 35% in the current year, followed by further growth of 16% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which suggests that the stock remains cheap at its current price level. And while its recovery may not yet be complete, it appears to be on the right track. This could lead to share price growth in the long run.

Improving outlook

Also set to capitalise on the housing market’s growth potential is fellow housebuilder Persimmon (LSE: PSN). It has been able to generate strong earnings growth in recent years. In fact, in the last five years its bottom line has risen at a double-digit rate in every year.

This is a stunning rate of growth and yet the stock has a price-to-earnings (P/E) ratio which is little more than 9. This suggests that investors remain unsure about the prospects for the UK housing market. However, with interest rates set to rise at a relatively slow pace and the government continuing to participate in its stimulus programmes, the prospects for the industry appear to be positive, even when Brexit risks are factored in.

Furthermore, it appears as though investors have taken into account a potential slowing in the housing market. Persimmon’s valuation includes what appears to be a wide margin of safety, and this could provide new investors with an enticing risk/reward ratio.

During the last two decades the outlook for the housing market has been consistently uncertain. Affordability issues and economic woes have caused investors to remain cautious. But with demand and supply being so far out of alignment, the future for the industry may be similar to its fast-growing past.

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Peter Stephens owns shares in Persimmon. 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.

These 2 dividend-growth stocks are a great opportunity to make a million

Peter Stephens — Tue, 19 Dec 2017 12:20:04 +0000

The UK housing market appears to have a positive future. There is a fundamental lack of supply versus demand, and this situation does not appear likely to change even in the long run. Despite promises of increased housebuilding by various governments, there has been greater population growth than the number of houses built for many years.

As such, and with population forecasts still well ahead of house completions, now could be the perfect time to buy into the sector via these two companies.

Encouraging progress

Reporting on Tuesday was leading housebuilder in Scotland Springfield Properties (LSE: SPR). The company’s trading in the first six months of the year has been positive in both its private and affordable divisions. It has been underpinned by the continued need for more homes for private individuals across all tenures in the affordable and social housing sector. As such, its revenue for the period has been in line with expectations.

Despite favourable supply and demand conditions, the company’s valuation remains low. It trades on a price-to-earnings (P/E) ratio of 12.7 and yet is forecast to record a rise in its bottom line of 23% next year. This suggests that it is grossly undervalued at the present time and could be due for a major upward re-rating over the medium term.

Clearly, the housebuilding sector is highly politicised. Government policy can have a huge impact on the trading conditions for companies such as Springfield Properties. However, the UK is less than one year into the current Parliament, and the government seems intent on stimulating the industry through policies such as Help to Buy. Therefore, over the next few years it would be unsurprising for profitability across the industry to keep moving higher.

Improving business

Also offering upside potential within the housebuilding sector is Bovis (LSE: BVS). The company has experienced a difficult period in recent years, with the quality of its homes being below the required standard according to a range of customers. This has caused provisions to be large and it has negatively impacted upon the company’s financial performance. In fact, in the current year the company is forecast to see its earnings fall by 19% following last year’s 8% decline.

Under a new management team though, Bovis is intent on delivering a successful turnaround. It is seeking to improve the quality of its new homes in order to boost its customer satisfaction rating. While there is still a long way to go on this front, the company seems to be making good progress. It is due to report a rise in earnings of 25% in the current year, which puts it on a forward P/E ratio of just 12.5.

This suggests that there could be upside potential on offer. While possibly one of the riskier housebuilders due to its poor past performance, Bovis also seems to offer high potential rewards.

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Peter Stephens has no position in any 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.

2 ‘under the radar’ growth and income stocks that should beat the FTSE 100

Peter Stephens — Thu, 07 Sep 2017 10:27:45 +0000

While the FTSE 100 has risen by 8% in the last year, its outlook is relatively uncertain. Geopolitical risks concerning North Korea remain significant and could cause investors to become more cautious in future. Likewise, political risks in the US are building and concerns about the debt ceiling may cause the index to experience some challenges in future.

However, against this backdrop there remain a number of stocks which could post positive returns. They could significantly outperform the FTSE 100, with these two companies being prime examples.

Turnaround potential

Reporting on Thursday was housebuilder Bovis (LSE: BVS). Its shares spiked by as much as 10% following its first-half results, with the company apparently producing the start of a recovery after a difficult period. Its profitability continues to be negatively affected by legacy customer service costs, but it is making good progress towards its target of a 4-star customer satisfaction rating. As well as this, it has a clear set of medium-term targets to return it to its status as a leading UK housebuilder.

Alongside progress made in terms of customer satisfaction, Bovis has a valuable land bank and improving balance sheet. It believes that operational issues are fixable and it has a programme of initiatives to drive return on capital employed. To this end, it believes it can generate an additional £180m+ of cash. This should help to increase its dividend payouts, with the company announcing special dividends of 134p per share to be paid over three years to 2020. This is in addition to a forecast 5% rise in dividends in 2017, as well as a planned 20% increase in 2018.

Altogether, a rising dividend means that Bovis has significant income appeal. It could yield as much as 9% in 2018 if its forecasts are met. Alongside expected earnings growth of 17% next year and a price-to-earnings growth (PEG) ratio of 0.7, it could prove to be a strong buy.

Dividend appeal

Also offering FTSE 100-beating performance is motor insurance specialist, Admiral (LSE: ADM). It continues to offer a superb dividend yield which could become more popular as inflation moves higher. The company currently yields around 6%, and this has the potential to move higher over the medium term. It is forecast to increase its bottom line in each of the next two years, which means that dividend growth could realistically keep pace with inflation.

The motor insurance industry has faced uncertainty in recent months, with changes to the discount rate applied to personal injury claims being an obvious example. However, Admiral and its peers are generally able to pass higher costs on to customers over the medium term, which makes them a relatively robust place to invest.

With a strong track record of paying generous dividends, the stock could be an excellent defensive income play. Given the uncertainty facing the FTSE 100, it could outperform the wider index.

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Peter Stephens owns shares of Admiral. 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.