When hunting for dividends, I always make it a point to apply the rule to stocks below the FTSE100And there is one in the FTSE250 which I believe can provide wonderful income opportunities for my portfolio.
On top of the tree
Provider of an online trading platform IG Group (LSE: IGG) is the market leader. And at the moment, the business looks solid with the £3 billion cap.
In its most recent trading update in March, the company said total revenue for the third quarter was £240.1 million, up from the £229.7 million recorded in the second quarter and flat compared to the same three-month period in the previous financial year.
What is particularly impressive is that this was achieved despite the markets “the lowest volatility in over five years“.
IG makes more money when markets are choppy, so if it’s still doing well when nothing’s happening, how well should it do when greed and fear really set in?
And we can be pretty sure that this will happen at some point in the future.
Mood improves
At the moment, the market seems positive about the company, with shares expected to rise 10% by 2024 – almost double the return of the FTSE 250 as a whole.
Full-year numbers are due in a few weeks, but I would be surprised if trading has taken a turn for the worse.
It will also be interesting to read new CEO Breon Corcoran’s future plans for the company.
Dividend demon
A good rise in a company’s share price is nice, but it’s the dividends that make IG stand out from the crowd, in my opinion.
As things stand, analysts expect the company to pay its owners 47.3 pence per share in cash in its 2025 financial year (ending next May).
Of course, this is only a forecast and changes are possible. However, the current price results in a healthy dividend yield of 5.7%.
By comparison, the FTSE 250 as a whole only yields 3.3%.
So is it worth the extra risk?
Overcrowded market
It is worth noting that this area is often in the sights of regulators.
It’s never wrong to ensure that only those who really understand what they’re doing are allowed to buy and sell complicated financial instruments, but strict new rules could potentially reduce the number of customers on the bank’s books.
IG also faces tough competition. This is no surprise, as operating margins typically range between 40 and 50 percent, so the company cannot afford to rest on its laurels.
Everything included in the price?
On the positive side, the stock is trading at a price-earnings ratio (P/E) of just 8. This is cheap compared to companies in the financial sector and the overall market.
Some of these points probably address the concerns mentioned above, but considering IG’s very healthy balance sheet, I think this is a bargain.
It is also worth noting that shares are up 40% since 2019. That is a decent return, boosted even further by the nice dividends, and far exceeds the measly 5% gain of the FTSE 250.
Since I owned the stock many moons ago, I am seriously considering buying it back as soon as cash is available.
This passive income stream – more than doubled by projected profit – looks too good for me to resist.
The post “I think this is the best FTSE 250 dividend share you can buy. And it’s dirt cheap!” appeared first on The Motley Fool UK.
Further reading
Paul Summers does not own any of the stocks mentioned. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article about the companies mentioned in this article are those of the author and as such 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.
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