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these are FTSE250 Income stocks trade at the lowest earnings multiples. Would it be a great way for investors to generate passive income at a low cost?
Marks and Spencer Group
clothing and food retailers Marks and Spencer (LSE: MKS) has not paid a dividend in recent years. However, Citi analysts expect the company to resume its dividend policy this fiscal year, followed by a sharp increase in shareholder compensation.
A total dividend of 4.5p per share is expected for the financial year ending March. This gives us a decent starting yield of 2.8%.
Transactions at the company have been more impressive recently, with same-store sales up 7.2% in the December quarter. The company’s ambition to become a multi-channel operator could help it maintain this momentum and deliver long-term growth.
In January, it announced a £480m plan to overhaul its store network to take advantage of e-commerce opportunities. This includes the creation of 20 new large-scale stores that could help the company capitalize on the ‘click and collect’ boom.
But I still don’t think M&S is a good choice for income investors. The outlook for earnings and dividends remains highly uncertain amid a turbulent economy and persistently high inflation.
The latest data on food inflation from the British Retail Consortium yields alarming results. This shows his February annual price gains accelerating to his 14.5% from 13.8% the previous month. With the prices of essentials rising, shoppers can barely afford to spend on clothing and home goods.
We are also concerned about M&S’s ability to generate solid investor returns as competition in the apparel sector intensifies. This could again lead to a solid retreat in revenue and profit margins.
Ultimately, I think investors should stop buying stocks in retailers.not even low forward Price Earnings Ratio (P/E) 10.7x is enough.
house builder Redisplay (LSE: RDW) looks like a much more attractive dividend stock to me. Not just because it offers better overall value than Marks & Spencer, at least on paper.
In the fiscal year ending June, it traded at a P/E multiple of just 6.2x. Meanwhile, the corresponding dividend yield is 5.6%, well above the FTSE 250 share average of 3.1%.
I think Redrow’s long-term prospects are much more encouraging than those of the aforementioned retailers. There is a serious housing shortage in the UK, and housing construction rates continue to be low, and look set to get worse as the population grows.
But that doesn’t mean I buy stock in companies for passive income. Redrow’s own order book fell by £400m year-on-year to £1.1bn as of January 1st.
Average home prices fell 1.1% last month, the biggest drop in more than a decade, according to the latest national data. Buyer demand is weak and that trend may continue as interest rates continue to rise and the economy deteriorates.
I believe Redrow will pay great dividends over the next decade.That’s why I keep some FTSE100 Home builder in my portfolio. But I think investors are better off buying other dividend stocks for market-beating income this year.
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