My top 3 FTSE 250 income stocks for 2020

Rupert Hargreaves highlights the income stocks he’s betting on to beat the market in 2020.

| 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.

Pub and dining group Marston’s (LSE: MARS) is one of my top FTSE 250 income picks for this year.

The stock supports a dividend yield of 5.9% at the time of writing, and the payout is covered 1.8 times by earnings per share.

These impressive dividend credentials suggest to me that Marston’s could be a great addition to a portfolio for 2020. Not only is the stock an income champion, but it also looks relatively undervalued at current levels. Shares in Marston’s are dealing at a forward earnings multiple of 9.6 compared to the market average of around 14.

Should you invest £1,000 in Robert Walters Plc 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 Robert Walters Plc made the list?

See the 6 stocks

Debt balance

It appears that one of the reasons why Marston’s is trading at such a deep discount to the rest of the market is the size of its debt pile. Group borrowing was £1.4bn at the end of its latest financial year, compared to a market capitalisation of £840m.

The good news is that management is speeding up plans to reduce debt with £70m of asset disposals planned in the company’s 2019/20 financial year, as well as a reduction in capital spending to help free up cash flow.

As borrowing falls, I think there’s a good chance the market could re-rate the stock higher in 2020, and investors will be paid to wait for the recovery.

Rising demand

I also think that homebuilder Redrow (LSE: RDW) could be an excellent income investment for 2020. With the UK facing a chronic undersupply of new homes, builders like Redrow can’t put up new properties fast enough.

The company’s earnings per share have more than doubled over the past four years, and considering the lack of supply in the housing market across the country, it doesn’t look as if Redrow’s growth is going to slow any time soon.

Government policies designed to stimulate homebuilding activity, such as cutting planning red tape, should help builders like Redrow increase output. With an operating profit margin of nearly 20%, shareholders should be well rewarded if Redrow goes through a growth spurt.

At the time of writing, the stock supports a dividend yield of 4.2%, and the payout is covered nearly three times by earnings per share. The company also has £124m of cash on the balance sheet, enough to fund the distribution for at least a year according to my research.

Niche market

Sabre Insurance (LSE: SBRE) might not be a household name, but I think this company has some of the most attractive income credentials in the FTSE 250.

Sabre owns a handful of car insurance brands, including Go Girl, Insure2Drive and Drive Smart. All of these brands fill a particular niche in the market and are highly rated by customers.

Insurance can be a risky business, but where Sabre differentiates itself is its conservative underwriting approach. The company will only offer coverage to the most trustworthy customers. While this approach has had an impact on growth, it has helped Sabre remain highly profitable. Net profit has grown at a compound annual rate of 11% for the past six years.

City analysts believe the company will distribute 100% of earnings per share in dividends for its current financial year, which gives a dividend yield of 6.6% on the current share price. Analysts are forecasting a slight decline in the payout next year, but a dividend yield of 6% is still projected.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Don’t panic as Warren Buffett retires! Just stick to the Oracle of Omaha’s method

The world's greatest investor Warren Buffett is finally retiring, but this isn't the end of his influence. It’s only the…

Read more »

US Tariffs street sign
Investing Articles

Up 10% in a month! Are the Scottish Mortgage shares the best way to play the tech stock recovery?

Harvey Jones is impressed by the resilience shown by Scottish Mortgage shares during recent turmoil. Should tech-focused investors consider buying…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing Articles

Is the HSBC share price an absolute steal at today’s levels?

The HSBC share price has had a terrific run despite the recent sell-off. Now Harvey Jones wonders if the FTSE…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Start investing in the stock market this May with under £1,000? Here’s how!

Christopher Ruane explains some basics of how a stock market newcomer could start investing with under £1,000 and no prior…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

Is this a ‘Warren Buffett moment’ in the markets?

Warren Buffett has been doling out wisdom to shareholders this weekend. Our writer puts one well-known Buffett adage into current…

Read more »

Young woman holding up three fingers
Investing Articles

3 stocks Fools bought over 10 years ago and still hold

The Motley Fool’s approach to investing prioritises buying and holding quality stocks for long periods of time.

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

8.1% yield! Here’s the dividend forecast for British American Tobacco shares through to 2027

British American Tobacco shares have been a prized commodity for investors seeking a large passive income. Are they a potential…

Read more »

House models and one with REIT - standing for real estate investment trust - written on it.
Investing Articles

1 FTSE 250 stock trading well below book value

Stephen Wright thinks investors have a number of attractive possibilities with a FTSE 250 REIT trading at a discount to…

Read more »