With its 10% dividend yield, I’d buy this dirt-cheap FTSE 250 stock
It is not every day that I get to talk about a high-yield dividend stock that is also dirt-cheap. So when the opportunity does present itself, I am happy to grab it with both hands. The stock I am referring to is the FTSE 250 investment platform CMC Markets (LSE: CMCX). I have written about it a few times recently, but it just appeared on my radar again as one of the worst performing FTSE 250 stocks of 2021. For the period up to 20 December 2021, the stock has fallen some 39%, making it the second biggest index faller. It is second only to the very volatile Cineworld.
CMC Markets crashes in 2021
Despite similarly poor performances in 2021, the stock’s story is very different from Cineworld’s, however. It actually did very well last year as we spent more time saving and investing, creating a boom for investor-related services. By April of last year, shortly after the unforgettable market crash, the stock had already touched multi-year highs. And the party continued well into this year, as the stock reached successive all-time-highs. The tempo slowed down, though, early in 2021. After the company revised its outlook downwards more recently and its results also corrected after last year’s highs, investor interest in it has waned. As a result, it has wound up ending the year losing much of the gains made since the start of the pandemic.
Why I still like the FTSE 250 stock
But I do believe that there is merit to the stock. So much so that I actually bought the stock a few months ago. The first thing I like about it is its massive 10% dividend yield. It rivals that for FTSE 100 industrial miners like Rio Tinto and Evraz, which recently saw an unexpected commodity price boom. But even before this, the stock was a good one to buy for dividends. Its average dividend yield for the past five years has been at a healthy 6.3%.
What I’d do
Also, while its financials have indeed been underwhelming recently compared to last year, that should have been expected considering that the Covid-19 situation has become more normalised. And after its share price fall, it is a dirt-cheap stock, with a price-to-earnings (P/E) ratio of around 7.5 times. If this is not reason for me to buy a profitable FTSE 250 stock, I do not know what it is.
There could be more disruption for the stock in the new year, with talks of it being split into two. But when and how that happens remains to be seen. It might even impact the stock positively. In the meantime, I think there is a whole lot going for the stock anyway as described above. So, even though I am currently sitting on a loss on this investment, I expect it to pick-up in 2022. I might even buy more of it at its current low levels.
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Manika Premsingh owns CMC Markets, Cineworld Group, Evraz and Rio Tinto. 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.