Could these 4 FTSE 250 big-yielding dividend bargains make you a million?

Royston Wild picks out a cluster of low-cost dividend stocks from the FTSE 250 (INDEXFTSE: MCX) and considers whether or not they deserve your attention right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 250 is jam-packed with exceptional income shares that could well make you a fortune.

Having said that, there are also plenty of dirt-cheap big yielders sitting in the index that are investment traps waiting to rout your shares portfolio.

How do the dividend stocks I have analysed below stack up?

Should you invest £1,000 in Vodafone right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Vodafone made the list?

See the 6 stocks

Marston’s

The difficult outlook for many of Britain’s listed publicans means that many dividend investors may be choosing to give Marston’s (LSE: MARS) a wide berth today. I reckon this could be a mistake.

Even though the leisure leviathan is expected to endure some earnings woes in the near term — a 3% bottom-line reversal is forecast for the year ending September 2019 — this isn’t the first time the company has encountered a little profits turbulence in recent years. Yet this has not precluded the annual dividend raise.

Marston’s is still delivering significant cash flows and should help it to ride out any current trading troubles and keep advancing the dividend. And further out, I’m confident the publican’s site expansion programme should allow it to capitalise on the rosy outlook for the pub-restaurant segment and help earnings, and thus dividends, to step higher.

City brokers share my glass-half-full approach and they are expecting the annual dividend at Marston’s to climb to 7.6p per share this year, from 7.5p in fiscal 2018. As a consequence, investors can enjoy a bulky 7.5% yield.

An ultra-low prospective P/E ratio of 7.3 times sweetens the investment case.

Rank Group

I am also confident that Rank Group (LSE: RNK) should continue offering market-smashing dividend yields long into the future.

As I mentioned last time out, the gambling giant is suffering more recently from falling footfall at its Grosvenor casinos and Mecca bingo venues. This would not deter me from investing, however, thanks to the exceptional revenues potential of the online betting market.

Turnover from this segment continues to grow by double-digit percentages and the group is understandably bulking up its presence here. Last month it snapped up Spanish bingo operator YoBingo.es for a fee that could rise to €52m. The business is the Iberian state’s second largest internet bingo operator and the move improves the multi-channel proposition of Rank’s existing Spanish operations.

While the business is expected to endure a 6% earnings fall in the year to June, its rapidly-improving balance sheet and solid long term profits picture — it’s expected to rebound starting with a 5% earnings rise next year — means that dividends are still expected to keep rising at an electric rate.

Last year’s 7.3p per share reward is anticipated to rise to 7.9p in the outgoing period, and again to 8.5p in fiscal 2019. Consequently yields for these years stand at 4.3% and 4.5%, respectively.

Throw a dirt-cheap P/E ratio of 12.3 times for the upcoming year into the equation too, and I reckon Rank is a hugely attractive investment destination today.

DFS Furniture

I’m much less enamoured by the earnings and thus dividend prospects for DFS Furniture (LSE: DFS), however.

My pessimistic view is at odds with that of the broader market, however, as reflected by the retailer’s stunning share price ascent since the dying embers of March (its market value has swelled by a third since the release of full-year trading details back then). In fact, this spike makes me concerned that buyers have set themselves up for a fall as pressure on consumers’ spending power increases.

DFS’ latest trading statement may have matched broker expectations but should have given little reason for cheer. Had it not been for the positive contribution made by the Sofology acquisitions, sales would have fallen during the six months spanning August-January.

And who would back DFS to bounce back in the current climate? Certainly not City analysts who have downgraded their earnings estimates since the half-year results, and are now expecting a 6% bottom-line decline in the 12 months to July.

What’s more, this anticipated profits drop means that the firm’s progressive dividend policy will fall. DFS currently expected to hold the dividend at 11.2p per share. However, I reckon a possible cut cannot be ruled out given its ballooning debt pile (up £36.7m year-on-year to £172.3m in January) and its medicore medium-term earnings outlook.

A prospective forward P/E ratio of 13.2 times may make DFS cheap, but it’s cheap for a very good reason. I think investors should give the business an extremely wide berth in the current economic environment.

N Brown Group

Of course, N Brown Group (LSE: BWNG) isn’t immune to the same tough retail environment as DFS.

However, the special fit fashion retailer’s lack of exposure to so-called big ticket items like furniture, allied with its focus on the niche segment — namely the increasingly-popular plus-size segment – should allow revenues to stay broadly afloat despite declining consumer appetite.

Indeed, its strength was laid out in first quarter trading numbers this week in which the Simply Be brand owner noted that revenues grew 0.4% during the three months to June. N Brown’s resilience also pays testament to heavy restructuring that has seen it ditch its mail order model and embrace the e-commerce phenomenon.

And its move online printed a new chapter this week when the retailer announced it was considering closing all its 20 stores. N Brown now sources three quarters of total revenues via the internet and so this is a logical long-term step to keep costs down in an age of falling footfall up and down the high street.

The current travails for Britain’s retail sector means that earnings are expected to just flatline in the 12 months to February. On the plus side, however, the dividend is expected to be held at 14.23p per share, meaning investors can enjoy a 7.9% yield. And a bargain forward P/E ratio of 7.8 times puts the icing on the cake.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild 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.

More on Investing Articles

Dividend Shares

How a stock market crash could boost investors’ passive income by over 40%

Jon Smith explains how a continued fall in the stock market isn't always a bad thing, especially when it comes…

Read more »

Investing Articles

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »