2 FTSE 250 stocks yielding 4% I’d buy today

These two FTSE 250 (INDEXFTSE: MCX) are in the process of merging. Together they could be even strong says Rupert Hargreaves.

| 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 UK banking scene has, historically, been quite a boring place dominated by the big four. However, recently there’s been a surge in activity across the sector partially among challengers, which are shaking up the market for financial services.

First of all, there was a merger between Virgin Money and CYBG. Then shares in Metro Bank, the first high-street bank to be granted a new banking licence for 150 years in 2010, plunged after it admitted a mistake in calculating the value of loans on its balance sheet. And now, challenger banks OneSavings (LSE: OSB) and Charter Court Financial (LSE: CCFS) have announced they are exploring a merger.

Banking tie-up

The OneSavings/Charter merger has been announced officially today. The initial proposal says that for each Charter share, holders will receive a 0.8253 chunk of a new OneSavings share which, when all said and done, will give Charter investors 45% of the combined group immediately after completion. 

Should you invest £1,000 in Osb Group 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 Osb Group made the list?

See the 6 stocks

Managers believe the deal will unlock £22m in annual pre-tax cost savings in the three years after the transaction. Around 30% of these cost savings are expected to be achieved in the first 12 months after a merger. 

The two banks, both of which specialise in lending to buy-to-let investors, should be able to use their enhanced size both to attract new customers and offer better deals to existing borrowers. They are already firing on all cylinders. Today, OneSavings reported a 15% increase in underlying profit before exceptional items to £193.6m for the full-year. Meanwhile, Charter announced a rise in pre-tax profit of 42% for the year ending 31 December 2018. A strong demand for buy-to-let and residential mortgages helped the company increase its loan book by 24% during the period, to £6.7bn.

Taking market share 

Using today’s numbers, when combined, OneSavings and Charter will have a loan book worth around £15.7bn. This is tiny in comparison to the UK’s largest banks, such as Lloyds (£444bn of loans and advances to customers outstanding at the end of 2018), but with the size of the loan book growing at 20%+ per annum, the combined group should quickly be able to scale up.

And when the deal is complete, I think shareholders will be well rewarded as both of these companies have plenty of scope to increase their cash returns to investors. 

Today, Charter announced its inaugural dividend of 12.7p per share, (on earnings per share of 50p) giving a dividend yield of 3.8%. OneSavings hiked its distribution to investors to 14.6p for the full year, (on earnings per share of 58p) giving a dividend yield of 3.7% at the time of writing.

Considering the fact that both companies have plenty of headroom to increase dividends by 100% or more without factoring cost synergies from the merger, I think there is a solid chance that the combined OneSavings and Charter could become one of the financial sector’s best income stocks — that’s without factoring in the explosive growth both firms are currently registering (as I have said before, based on its growth, I think OneSavings alone could be worth as much as 694p). That’s why I would buy these two FTSE 250 challenger banks today.

Should you buy Osb Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

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 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

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

5 crucial Warren Buffett investing habits and a stock to consider buying now

Here's a UK stock idea that looks like it's offering the kind of good value sought by US billionaire investor…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

2 legendary FTSE 250 shares I won’t touch with a bargepole in 2025

Roland Head looks at two household names and explains why these FTSE 250 shares are already on his list of…

Read more »

Investing Articles

Why I think the Barclays share price is still a bargain heading into 2025

Stephen Wright thinks a combination of dividends and share buybacks means the Barclays share price is still attractive, despite a…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s how an investor could use £10 a day to target a £2,348 second income

For just a tenner a day, our writer illustrates how an investor could build a four-figure annual second income over…

Read more »

Investing Articles

Some issues that could hammer the Lloyds share price in 2025

I'm upbeat about the Lloyds Bank share price as we head ever closer to 2025. But here are some of…

Read more »

Investing Articles

If the market shut down for 10 years, I’d be happy to own this growth stock

Warren Buffett advises people to invest in shares that they'd happily hold for a decade. Here's one top growth stock…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

My strategy to target 10 times stock market returns in 2025!

Our writer highlights a growth share that he reckons has the potential to deliver tenfold returns in the stock market…

Read more »

Man smiling and working on laptop
Investing Articles

As FTSE 100 shares sink, here’s one I think’s too cheap to ignore!

With the FTSE 100 selling off, now could be a good time for savvy investors to go shopping for bargain…

Read more »