UK Markets open in 1 min

I think this FTSE 250 dividend stock could double your money in 2020

Rupert Hargreaves
Woman calculating figures next to a laptop

If there’s one stock I’d stay away from in 2020, it would have to be fashion retailer Superdry (LSE: SDRY).

Over the past 24 months, Superdry has lurched from disaster to disaster and investors have rushed to sell their holdings. Shares in the retailer are currently dealing 75% below their all-time high of 2,000p reached at the end of 2017. The company reported a 68% decline in earnings per share for its 2019 financial year.

Still, City analysts are expecting the group to return to growth in its current financial year now its founder has returned to manage the business. Julian Dunkerton took control in April and has since focused on cutting costs and ensuring new products are available for the final quarter of 2019. 

Founder control 

Dunkerton believes he’s done enough to save the brand and position it for a busy Christmas period, but only time will tell. After three profit warnings in one year, Superdry is facing an uphill struggle to restore investor confidence. That’s without taking into account the harsh retail environment on the high street. 

To put it another way, Superdry’s founder needs a Christmas miracle to help the brand return to its former glory and, as a result, I think it is worth avoiding the company for the time being.

Instead, I would buy construction group and FTSE 250 dividend champion Galliford Try (LSE: GFRD) for 2020.

Re-building the business 

Just like Superdry, 2019 has been a tough year for Galliford. It started by issuing a profit warning in April due to exceptional costs on the Queensferry Crossing in Scotland, and the firm has struggled to rebuild investor confidence ever since. 

Management is undertaking a strategic review of this construction division, with the view to a sale in the medium term. Galliford has also recently agreed on the sale of its homebuilding business.

After peer Bovis approached the company about a deal at the beginning of 2019 (rejected), it returned in the third quarter with a higher offer. Bovis is paying £1.1bn in cash and shares to acquire Galliford’s Linden Homes and Partnerships divisions. This deal raises the prospect of a special dividend for Galliford’s investors, and also strengthens the group balance sheet. 

Additional security 

The City has been worried about the company’s balance sheet for some time, and the stock, which currently supports a dividend yield of around 9%, should receive a boost from this additional security.

And if management can agree on a long-term plan for the rest of the group’s businesses, including the construction and regeneration arms, I reckon the stock could produce a total return of more than 100% in 2020. 

At the time of writing, shares in Galliford are dealing at a forward P/E of just 5.4, around half of the sector average. In my opinion, this reflects the level of uncertainty surrounding the business.

If management can lay out a long-term plan, I reckon investor confidence will return, and the stock could rise to a sector average multiple, implying an upside of nearly 90% from current levels. On top of this, there’s that juicy 9% dividend yield to look forward to. 

More reading

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Superdry. 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