I would buy this FTSE 250 income stock at a 52 week low
A FTSE 250 income share seems like an attractive investment to me in the current environment.
Shares of this company recently fell to a 52-week low, despite the company’s growing international presence and rising profitability.
The company I’m talking about is the financial services group GI (LSE:IGG). Over the past two years, this organization has grown into an international financial powerhouse, leveraging its presence in the UK market to expand globally and grow its customer base.
The group specializes in financial market trading and trading software. This business can be lucrative, especially in volatile markets when investors and traders are closing more deals.
As the business has grown, it has also increased shareholder returns, making the company one of the most attractive income stocks on the FTSE 250.
FTSE 250 Income Share
IG’s interim results, covering the period to the end of November 2021, highlight the company’s strengths. Overall net trading revenue for the period increased 16% year-over-year. Unfortunately, while costs increased by 22%, overall pre-tax profit only increased by 8%.
I am not particularly bothered by this increase in overall costs. IG’s investment in technology and people helps the company differentiate itself from the competition. These investments will impact profitability, but should result in long-term growth.
Indeed, three years ago the firm was a UK-centric and CFD-focused business, which left it incredibly exposed to the UK economy and regulators. When regulators cracked down on high-leverage CFD products, the company had to change direction. Since then, it has transformed into a global fintech company with an international footprint.
This expansion has come with its own set of challenges. The company must compete against larger peers for market share. He also has to pay more for the talent. This is one of the reasons why costs have increased faster than sales, as I explained above. These headwinds are not going away anytime soon. They will likely remain the company’s biggest challenges in the future.
Nevertheless, the company’s expansion plans are paying off. Last year it acquired US broker Tastytrade. This is already contributing to growth. Revenue rose 29% in the three months to the end of November.
As the company’s bottom line grew, it was able to increase its dividend to investors. The annual payment fell from 31.4p in 2016 to 43.2p. This suggests the stock offers a prospective dividend yield of 5.7% at the time of writing.
On top of that mouth-watering dividend yield, stocks are also selling at a forward earnings multiple of just 9.6. I think this underestimates the company and its growth prospects over the next few years.
Therefore, I would take advantage of the recent decline in IG stock price and buy FTSE 250 stock for my portfolio as an income investment.
Rupert Hargreaves has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.