Although inflation has fallen in recent months, dividends may still hold appeal. They are likely to make up a significant proportion of total returns for many investors. History shows that the reinvestment of dividends can have a major impact on investment returns over a long period of time, which means that higher-yielding shares could still be of great interest to investors.
With that in mind, here are two FTSE 250 dividend stocks that could offer favourable risk/reward ratios. With 6%+ dividend yields, their total returns could be highly attractive.
Improving outlook?
Wednesday saw brewing and pub retailing company Marston’s (LSE: MARS) releasing interim results for the 26 weeks to 31 March. The company’s underlying revenue increased by 20% to £528.1m, with pre-tax profit increasing by 8% to £36.3m. It was able to deliver underlying profit growth in Taverns, Leased and Brewing, while its Destination and Premium profits were in line with the previous year despite poor weather.
The company continues to face an uncertain outlook. Consumer confidence in the UK has been weak in recent years, and this has put pressure on the wider pub industry. However, with Marston’s seeking to invest for future growth though a target of opening 15 new pubs in the current year and engaging in M&A activity, it appears to be focusing on the long-term potential of the sector.
While the company is expected to report a fall in earnings of 1% this year, its bottom line is forecast to rise by 5% next year. Since it trades on a price-to-earnings (P/E) ratio of 9 and has a dividend yield of 7.2% which is covered almost twice by profit, it appears to offer an impressive value and income outlook for the long term.
Uncertain period
Also offering a high yield and low valuation is FTSE 250 peer Galliford Try (LSE: GFRD). The construction and housebuilding company’s future prospects appear to be relatively uncertain, with the UK economy’s outlook deteriorating in recent months. This is set to contribute to a mixed performance from its bottom line, with growth of 8% this year expected to be partially offset by a decline in earnings of 2% next year.
Despite this, Galliford Try appears to offer a wide margin of safety. The company’s shares trade on a price-to-earnings (P/E) ratio of around 8, which suggests that investors have factored-in potential challenges. And with it having conducted a rights issue, its capital position now seems to be stronger ahead of what could prove to be a volatile period for the construction industry.
Galliford Try has a dividend yield of 7.7% at the present time from a payout which is covered twice by profit. As such, it could prove to be a strong income stock that offers high rewards. Certainly, its risks may be higher than for many income shares, but the potential for high rewards means it is likely to appeal to investors for the long term.