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