Forget buy-to-let: I think these FTSE 250 dividend stocks can help you become an ISA millionaire

Roland Head picks two FTSE 250 (INDEXFTSE: MCX) stocks he’d buy for hassle-free wealth building.

| 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.

Buy-to-let property has a reputation for delivering big long-term profits. But this generally relies on rising house prices. These aren’t guaranteed, especially after the housing market boom we’ve seen over the last decade.

If you want to invest your spare cash to become a millionaire, I believe the low-cost, tax-free shelter provided by a Stocks and Shares ISA is a better way to achieve this goal. Today, I want to look at two stocks I’d choose for investors wanting a hassle-free way to build wealth.

A 141-year heritage

FTSE 250 merchant bank Close Brothers (LSE: CBG) can trace its history back to 1878. Today, it’s a modern organisation with specialist expertise in lending, wealth management, and stock broking.

The bank said on Friday its performance has remained stable over the last 12 months, despite “mixed trading conditions.” Total lending has risen by 5.1% to £7.6bn, while bad debts are said to remain low. However, lower fee levels and higher funding costs mean that Close’s net interest margin, a measure of profitability, has fallen from 8% to 7.8%.

The shares have dipped slightly today, and I guess this is a slight disappointment. But it’s worth remembering the big high street banks all have net interest margins of less than 3%. By comparison, Close Brothers remains highly profitable.

Why I’d buy

The companys’ stock has comfortably outperformed the big high street banks in recent years. Dividends have been generous too. Over the last 20 years, the payout has risen fourfold, from 14.4p to 63p. Unlike many financial firms, the dividend wasn’t cut during the financial crisis.

My sums show shareholders have enjoyed a 22% return from dividends over the last five years. Share price gains lift the total return to about 30%. With the stock trading on 10 times forecast earnings and offering a 4.5% dividend yield, I think Close Brothers remains a good buy-and-hold stock.

Simple pleasures

Most of the children I know drank Fruit Shoots when they were younger. Some have since progressed onto drinks such as J2O, Robinsons squash, R Whites and Tango. Many also like Pepsi and 7UP. What all of these brands have in common is that they’re either owned or produced under exclusive licences in the UK by Britvic (LSE: BVIC).

Soft drinks have been popular in the UK since Victorian times, and I don’t see that changing in my lifetime. Britvic’s large product range, track record of growth, and cautious international expansion, suggests to me it’s likely to be a rewarding long-term investment.

The right time to buy?

The group’s financial performance certainly seems to suggest these drinks could be good for shareholders. Its operating margin has been stable at about 11% (or more) since 2014. Return on capital employed, which compares operating profit to the capital invested in the business, has averaged an impressive 18% over the same period.

After a period of heavy investment, Britvic’s net debt looks a little high to me at the moment. But borrowings are expected to fall as cash generation improves. I don’t think shareholders need to be concerned. BVIC stock currently trades on 15 times forecast earnings, with a 3.3% dividend yield. That seems a fair price to me. I’d be happy to add the shares to a long-term portfolio.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. 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

Investing Articles

£10 a day invested in UK shares could one day create a second income of over £3,000 a month!

Mark David Hartley outlines a strategy he’d use to aim for a second income that gets bigger over time, by…

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d aim to turn that into passive income of £903 a month

Our writer shares one approach to passive income investing, spotlighting a quality FTSE 100 stock he recently added to his…

Read more »

Investing Articles

Great dividend stocks! Here’s the forecast for Associated British Food shares to 2027

Associated British Foods' shares have dropped in value this year. Does this present a dip-buying opportunity for dividend investors to…

Read more »

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »