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Forget the Cash ISA! I’d buy these 2 FTSE 250 dividend champions yielding 5% today

Rupert Hargreaves
A person holding onto a fan of twenty pound notes

Today, the best Cash ISA interest rate on the market is around 1.5%, which is less than the current rate of inflation. 

So, if you want to earn a better return on your money, you’re going to have to look elsewhere. One of the first places I think you should go looking for a higher return is the FTSE 250. 

Global income 

The first FTSE 250 income champion I think could be a great alternative to a Cash ISA is Hays (LSE: HAS). This global recruitment company has reported a surge in income over the past six years, with profits rising an average of 18% per annum since 2013. 

Hays has been able to profit from the booming global economy, which has lead to a spike in demand for skilled workers, the company’s specialism. Recruitment for the accountancy, finance, construction and information technology professions accounts for 51% of group net fees.

One of the great things about recruitment businesses like Hays is that they require very little in the way of capital spending, so they tend to highly cash generative. Hays is no exception. For the past five years, the company has reported an average return on capital employed — a measure of profitability for every £1 invested in the business — of 35%.

City analysts expect Hays to report a slight increase in earnings per share for fiscal 2019, and it looks as if the company is on track to meeting this target. In a trading update published today, management confirmed Hays’ full-year operating profit is expected to be in line with current consensus market expectations, even though overall group net fee income remained flat during the second quarter of 2019.

Cash generation also remains strong. The company ended the period with £130m of cash on the balance sheet, which should be more than enough to cover its dividend for the year. City analysts have the stock distributing 7.2p per share this year and 7.5p for 2020, giving a dividend yield of 5%. As well as this income, the stock trades at an attractive forward P/E of just 13.

Income growth

Another FTSE 250 income champion I’ve got my eyes on is Cineworld (LSE: CINE). I will admit, in the past, I’ve been sceptical about this company’s prospects. Its highly leveraged acquisition of US peer Regal left the group with a huge amount of debt, although it has nearly doubled net profit.

So far, the company seems to be progressing well with the deal, and my view of the business is starting to change. Earnings per share are expected to jump 18% for fiscal 2019, leaving the stock trading at a forward P/E 10.2. On top of this, analysts expect a 20% increase in the dividend yield, giving a yield of 5.4%.

These figures are attractive and, in my opinion, offset some of the risk associated with the high level of debt. The dividend is also covered 1.8 times by earnings per share, giving plenty of headroom to maintain the distribution while paying down debt at the same time.

Overall, if you are looking for a cheap FTSE 250 income play, I highly recommend taking a closer look at Cineworld, although due to its high level of borrowing, it might not be suitable for every investor.

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Rupert Hargreaves owns no share 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