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I’d buy this FTSE 250 income stock trading at a 52-week low

Rupert Hargreaves explains why he thinks this FTSE 250 stock looks undervalued as a growth and income investment for the years ahead. The post I’d buy...
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One FTSE 250 income stock stands out to me as an attractive investment in the current environment.

Shares in this company have recently declined to a 52-week low, despite the firm’s growing international presence and rising profitability. 

The corporation I am referring to is the financial services group IG (LSE: IGG). Over the past couple of years, this organisation has become an international financial powerhouse, leveraging its presence in the UK market to expand worldwide and grow its customer base. 

The group specialises in financial market trading and trading software. This business can be lucrative, especially in volatile markets when investors and traders place more deals. 

As the business has expanded, it has also hiked shareholder returns, making the company one of the most attractive income stocks in the FTSE 250. 

FTSE 250 income stock 

IG’s interim results, covering the period to the end of November 2021, showcase the company’s strengths. Overall net trading revenue for the period increased 16% year-on-year. Unfortunately, as costs increased 22%, overall profit before tax rose just 8%. 

I am not particularly bothered about this increase in overall costs. IG’s investment in technology and personnel helps the company differentiate itself from the competition. These investments will impact profitability, but they should translate into growth in the long run. 

Indeed, three years ago, the enterprise was a UK-centric, CFD-focused firm, which left it incredibly exposed to the UK economy and regulators. When regulators clamped down on highly leveraged CFD products, the business had to change direction. Since then, it has transformed itself into a global financial technology outfit with an international footprint. 

This expansion has come with its own set of challenges. The firm is having to fight larger peers for market share. It also has to pay more for talent. This is one of the reasons why costs have been rising faster than sales, as I explained above. These headwinds will not go away any time soon. They are likely to remain the company’s biggest challenges going forward. 

Nevertheless, the business’s expansion plans are paying off. Last year it acquired US-based broker Tastytrade. This is already contributing to growth. Revenues increased 29% in the three months to the end of November. 

Growing payout 

As the company’s bottom line has grown, it has been able to increase its dividend to investors. The annual payout has jumped 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. 

As well as this tasty looking dividend yield, the shares are also selling at a forward earnings multiple of just 9.6. I think this undervalues the company and its growth prospects over the next few years. 

Therefore, I would take advantage of the recent decline in the IG share price and acquire the FTSE 250 stock for my portfolio as an income investment. 

The post I’d buy this FTSE 250 income stock trading at a 52-week low 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.





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