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£10k to invest? I’d buy these FTSE 250 dividend shares in an ISA today

Rupert Hargreaves
·3-min read
The letters ISA (Individual Savings Account) on dice on stacks of gold coins on a white background.
The letters ISA (Individual Savings Account) on dice on stacks of gold coins on a white background.

If you have £10,000, or any other amount, to invest today, then I highly recommend taking a look at FTSE 250 dividend shares.

Unlike their larger blue-chip peers in the FTSE 100, many of these stocks may offer higher income and growth potential in the long run.

With that in mind, I’m going to highlight two FTSE 250 shares I think could be worth buying.

FTSE 250 dividend shares

The first company on my watch list is iron ore producer Ferrexpo (LSE: FXPO).

This business has gone from strength to strength over the past six years. Earnings have increased at a compound rate of around 18% as the company has concentrated on improving the quality of its iron ore production and reducing costs.

I expect earnings to increase further over the next few years. Governments around the world are currently planning large stimuli plans to increase economic activity following the coronavirus crisis. These actions may lead to increased demand for steel, which could push up the price of iron ore. That would help boost Ferrexpo’s bottom line and profit margins.

The business is also very shareholder-friendly. It has consistently paid out a large chunk of profits to investors every year with dividends. City analysts don’t expect this trend to come to an end anytime soon. They’ve pencilled in a dividend yield of 11% for the current financial year.

However, despite the company’s potential, shares in the FTSE 250 dividend stock are currently changing hands at a forward price-to-earnings (P/E) multiple of less than 4. That suggests the stock offers a wide margin of safety at current levels. As such, I think it could be a great addition to any portfolio of FTSE 250 dividend shares.

Direct Line Insurance

The second company I’ve got my eye on right now is Direct Line Insurance (LSE: DLG).

This insurance giant has been a public company for less than a decade. Nevertheless, during this time it’s quickly established itself as an FTSE 250 dividend stock. City analysts are forecasting a dividend of 32.9p for the group’s current financial year. That suggests investors are in line for a near 12% yield.

Unfortunately, it doesn’t seem as if this is sustainable. Direct Line has benefited this year as its customers have been driving less, which means the organisation has paid out less in insurance claims. With activity on the roads back to normal, it’s likely the group will see higher payouts in 2021.

Still, despite this fact, analysts are forecasting a 23.9p dividend distribution in 2021. That gives a prospective dividend yield of 8.6% on the current share price.

In addition to this attractive level of income, the stock also looks cheap. It’s dealing at a forward P/E of just 10.3.

All of the above suggests to me Direct Line could be an attractive FTSE 250 income and growth investment for long-term ISA investors.

The post £10k to invest? I’d buy these FTSE 250 dividend shares in an ISA today appeared first on The Motley Fool UK.

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Rupert Hargreaves 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 2020