The FTSE 250’s performance in 2019 has been highly encouraging, with the mid-cap index rising by 11% since the start of the year. For income and value investors, though, there continue to be a number of buying opportunities, with the index still trading 9% below its all-time high.
Clearly, there could be uncertainty ahead for the index. It is more dependent on the UK economy than the international growth outlook, which could mean that Brexit continues to weigh on investor sentiment.
In the long run, though, a number of mid-cap stocks could have impressive income outlooks. Here are two prime examples that also appear to offer wide margins of safety.
Travis Perkins (LON:TPK) The first quarter update released by Travis Perkins (LSE: TPK) showed strong performance in difficult operating conditions. The company’s like-for-like sales growth was 7.3%, while its total sales increased by 5.4%. Its focus on customer service, coupled with a weak comparator from the previous year, boosted its financial performance.
The company’s online consumer brand, Toolstation, performed well. Its sales growth of 25% was the standout performer of the business, while its Merchanting sales growth of 10.6% was also impressive. Wickes has also experienced relatively high demand, with its core DIY and showroom categories boosting its overall sales growth to 10.5%.
Travis Perkins currently trades on a price-to-earnings (P/E) ratio of 13.5. Its bottom line is expected to grow by 5% this year, which would be a strong performance given the challenging operating conditions that it faces. With a dividend yield of 3.2% from a payout that is covered 2.3 times by profit, an improving income outlook could be ahead. As such, now could be the right time to buy a slice of the company.
Bellway Also facing an uncertain operating outlook is FTSE 250 housebuilder Bellway (LSE: BWY). The housebuilding sector has been volatile in the last couple of years, with underlying growth being strong but investor sentiment being highly changeable.
Bellway is expected to post earnings growth of 5% in the current year. This would be an impressive result at a time when house prices in a number of regions are under pressure, and consumer confidence is at a low ebb.
The company, of course, is being buoyed by low interest rates and the Help to Buy scheme. Both of these catalysts are expected to remain in place over the medium term, and may offset wider fears surrounding the prospects for the housing market as Brexit moves ahead.
With the stock having a dividend yield of 4.8% from a payout that is covered over three times by profit, it appears to have a bright income investing outlook. Its P/E ratio of 7 is relatively low – even for the housebuilding sector. Therefore, investors who are able to take a long-term view may be able to generate high income returns, as well as capital growth.
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.
Motley Fool UK 2019