2 dirt-cheap FTSE 250 dividend shares I’d buy right now

These two FTSE 250 (INDEXFTSE: MCX) shares appear to offer upbeat income outlooks for the long term.

| 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.

sdf

Finding shares which offer strong dividend prospects in the long run is never straightforward. Inevitably, performances of various sectors change over time and, on occasion, a stock can underperform versus previous expectations.

However, with the FTSE 250 continuing to offer good value for money, there seems to be a number of dividend shares which offer wide margins of safety. As such, the risk/reward ratio may be in an investor’s favour right now.

With that in mind, here are two companies which seem to offer excellent value for money and impressive income outlooks.

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

See the 6 stocks

Improving outlook

Although the UK retail sector has experienced a difficult period, there could be value investing opportunities on offer. One company which looks set to ride out the present difficulties — in terms of delivering earnings growth despite low consumer confidence — is Dunelm (LSE: DNLM).

The home furnishings retailer is expected to report a bottom line rise of 6% in the current year, followed by further growth of 10% next year. Despite this, the company trades on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it offers a wide margin of safety. This also indicates it could offer capital growth potential over the medium term.

With Dunelm having a dividend yield of almost 5%, it offers inflation-beating income prospects. And since its shareholder payouts are covered 1.7 times by profit, they could prove to be highly sustainable over the coming years. That’s especially the case since wage growth in the UK is now ahead of inflation for the first time in over a year. This could prompt improving consumer confidence and provide a boost to the wider retail sector.

Resilient outlook

Also offering a low valuation and impressive dividend prospects in the retail sector is Pets at Home (LSE: PETS). The company is currently experiencing a challenging period, with its bottom line due to rise by less than 3% per annum over the next two years. However, its business model appears to be sound and since consumer spending on pets can prove to be more robust than other areas during economically-challenging periods, the stock could have some defensive qualities.

With a dividend yield of around 4.8%, the company appears to offer a robust income return. There seems to be scope for it to pay a higher dividend over the next few years, even if profitability fails to move significantly higher. Its payout ratio stands at 55%, which doesn’t appear to be especially high. As such, investors may be able to enjoy inflation-beating dividend growth alongside one of the higher yields in the FTSE 250.

Since Pets at Home trades on a price-to-earnings (P/E) ratio of around 13, it could offer good value for money. With a robust operating model and encouraging income prospects, it could prove to be a sound dividend buy for the long term.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Peter Stephens has no position in any of the shares 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

Rear View Of Woman Holding Man Hand during travel in cappadocia
Investing Articles

Down 25%, but I think this high-quality FTSE 100 stock will bounce back

One top-tier FTSE hotel stock has sold off heavily this year, creating a potentially attractive opportunity for long-term investors.

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

This 1 moment changed Warren Buffett’s investment approach forever!

Our writer has learnt a valuable lesson from billionaire Warren Buffett, who changed his preferred investing style after a lightbulb…

Read more »

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

Could this overlooked FTSE 100 stock be the next Rolls-Royce?

Rolls-Royce's market cap was similar to this FTSE 100 firm just two-and-a-half years ago. Now it’s flying high. Could Melrose…

Read more »

Young female couple boarding their plane at the airport to go on holiday.
Investing Articles

Here’s how much passive income a 21-year-old investing £60 a week could earn by 35!

A 21-year-old putting this passive income into action today could realistically target a four-figure passive income by their mid-thirties. Here's…

Read more »

Female student sitting at the steps and using laptop
Investing Articles

£10,000 invested in Greggs shares a year ago is now worth…

Our writer goes through some of the recent price history for Greggs shares and explains why he's again decided to…

Read more »

British bank notes and coins
Investing Articles

With £10 a week, here’s how to start buying shares

Christopher Ruane says it's possible to start buying shares for a tenner a week. Here are some of the moves…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

Tesla stock’s up 75% in a year! Time to buy?

Tesla stock has soared in the past year. Our writer considers whether he ought to invest in the business at…

Read more »

Rear view image depicting a senior man in his 70s sitting on a bench leading down to the iconic Seven Sisters cliffs on the coastline of East Sussex, UK. The man is wearing casual clothing - blue denim jeans, a red checked shirt, navy blue gilet. The man is having a rest from hiking and his hiking pole is leaning up against the bench.
Investing Articles

Want to generate a £1,600 second income each year from a £20k ISA? Here’s how to try!

Stuffing an ISA with high-quality dividend shares is one way to build up passive income streams. Our writer explores how…

Read more »