The market sell-off is continuing to provide attractive opportunities for income investors, in my view. In this piece I’m going to look at three FTSE 250 dividend stocks that now offer yields of more than 7%.
All three firms look like decent long-term buys to me.
I’ve been buying
One stock I’ve been buying myself over the last couple of weeks is payment handling firm PayPoint (LSE: PAY). This £580m group operates a network of nearly 28,000 payment terminals in convenience stores around the UK.
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These provide card handling services and allow customers to make and receive cash payments for bills and other transactions. They also support the Collect+ parcel drop-off network.
PayPoint’s growth has been limited in recent years by the ongoing switch from cash to card payments. But the firm has the largest network of its kind in the UK and is diversifying to support future growth.
In the meantime, this business remains highly profitable, with an operating profit margin of more than 40%. A policy of returning surplus cash means the stock offers a dividend yield of nearly 10%. I expect this yield to fall somewhat over the next few years, but continue to see the shares as an excellent income buy.
A turning point?
It’s been a tough few years for Wood Group (LSE: WG), the Aberdeen-based energy servicing company.
The group’s reputation was built on providing offshore services for oil rigs in the North Sea. It’s more diversified these days and now provides a wide range of engineering services for the energy sector, including renewables.
However, market conditions have been tough in recent years. Major clients in the oil and gas industry have been keeping a tight lid on spending. And digesting the 2017 acquisition of rival AmecFoster Wheeler has turned out to be more difficult than expected.
Despite these concerns, I believe Wood Group may be nearing a turning point. Management has agreed two disposals recently which should help to reduce debt and refocus the group on its core operations. Earnings are expected to rise by nearly 15% this year, as profits return to growth.
These forecasts price the shares on just 8.5 times 2020 earnings, with a dividend yield of 7.8%. I reckon the shares are worth buying at this level.
The ultimate contrarian play?
Life’s not easy for fund managers at the moment. Their fees are generally calculated based on the value of the assets they manage. So when markets fall, so do profits. Active managers such as Jupiter Fund Management (LSE: JUP) must also compete with the increasing popularity of cheaper passive funds.
Jupiter’s pre-tax profit fell by 16% to £151m last year, following the departure of a top fund manager. The group’s dividend was held at 17.1p, but no special dividend was paid, reducing the total shareholder return.
However, chief executive Andrew Formica is beefing up the group’s operations through a merger with rival Merian Global Investors. This is expected to deliver big cost savings and diversify the group’s fund portfolio so that it’s not so heavily dependent on a few star performers.
Jupiter remains very profitable and generated a return on equity of almost 20% in 2019. The shares trade on just 11 times 2020 forecast earnings, with an expected yield of 7.5%. At this level, I rate Jupiter as an income buy.
