I’d buy this absurdly cheap FTSE 250 stock with a 10.4% yield

The FTSE 250 stock has been attractive in the recent past for its relatively low price and its sky-high dividend yield. Does it still look as good?

| 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.

It is not often that I write entire articles about a single stock twice in one week. But CMC Markets (LSE: CMCX) is an exception this week. I have followed the stock with some interest for some time for a few reasons. The FTSE 250 trading platform had a double-digit dividend yield and was also dirt-cheap. As trading activity boomed during the lockdowns, the company also did quite well. I liked it enough to buy it. 

Then this week, two pieces of news followed, that could change perspective on the stock. The first was that it could split in two, which I discussed in my first article on the stock earlier this week. This was followed by a cut in its dividends, which really made me sit up and take notice again. 

CMC cuts dividends as performance weakens

One of the biggest draws of the FTSE 250 stock for me has been its high dividend yield, above 12%. But a drop in performance led it to reduce its interim dividend as well. For the half-year ending 30 September, the company’s pre-tax profits fell by a huge 74%. In line with this, it reduced its dividend payout by 62% as well. 

Should you invest £1,000 in 3i Group 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 3i Group Plc made the list?

See the 6 stocks

Its share price has understandably fallen by more than 8% in the past week. It is now down to levels last seen in June 2020. I’m now thinking this could be a good time to add more of the stock to my portfolio. Here’s why. 

Even after the cut in its interim dividend from 9.2p last year to 3.5p now, the stock’s dividend yield is still a huge 10.4%. This still keeps it among the set of FTSE 250 stocks with the highest dividend yields. Moreover, its results look disastrous only in comparison to last year. But recall that last year was as atypical as they come. 

The silver linings for the FTSE 250 stock

Quite helpfully, CMC Markets has also presented a comparison with 2019 in its latest release, which gives some perspective and is also encouraging to me. Compared to the first-half of 2019, its pre-tax profits are still up by a whole 20%. And its dividend per share is higher by 23%. 

Its share price is still way higher than it was back then, though. It has around doubled, in fact. This could indicate that the stock is still quite pricey. But one look at the price-to-earnings (P/E) ratio suggests otherwise to me. According to my quick estimates, after the latest results it is at around six times, which is fairly low. 

My takeaway

In sum, I think the stock is still quite competitive both in terms of its price and its dividends. The only challenge I see is that there is some uncertainty because of its proposed split. Some analysts believe that it will be good for the stock, but that remains to be seen. In the meantime, its share price is struggling. All in all though, I would still buy the stock. 

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.

Manika Premsingh owns shares of CMC Markets. 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

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Here’s how a 40-year-old could start investing £100 per week to retire early

If a 40-year-old decides to start investing today, here's how they could potentially turn £100 a week into over £500k…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The FTSE 100 is up 60% in 5 years. Here’s why — and a big lesson!

The flagship FTSE 100 index has put in a very strong performance over five years. There's a specific reason for…

Read more »

Investing Articles

How much do investors need in an ISA to earn a £2,500 monthly passive income?

Charlie Carman explores how investors could strive for £30k in tax-free passive income each year from a dividend stock portfolio.

Read more »

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Down 22% in a month! Is this my chance to buy shares in this FTSE 100 outperformer?

Shares in InterContinental Hotels Group have outperformed the FTSE 100 over the long term. So is a chance to buy…

Read more »