There is always a good reason to research stocks that can earn me plump returns. But the reason is even bigger when I myself own the stock. Like the FTSE 250 investment platform CMC Markets (LSE: CMCX), which has a massive dividend yield of 11.2% right now. It rivals even the best of FTSE 100 yields.
What’s the catch with CMC Markets?
But here is the catch. The stock might have had a good run during the pandemic as savings rose and so did interest in investing. But that phase is long gone. After peaking in the six months ending September 2020, the company’s revenue and net profits declined through 2021. It even cut its profits expectations. And cut is dividends, which means that its yield could decline this year. It is little surprise then, that CMC Markets has seen its share price crash over the past year. It is now trading at half the levels it was at in early 2021.
Dirt-cheap FTSE 250 stock
This declining share price has resulted in an abysmal price-to-earnings (P/E) ratio of sub-7 times. And the number looks even smaller when I consider its forward P/E, based on its earnings expectations for the next financial year, at around 2.5 times. Even considering the recent correction in its financials, it does not get more dirt-cheap than that, if you ask me. This is especially so considering that its prospects do not look bad at all.
A few days ago, it released its latest trading update, which is succinct but quite illuminating in my view. It says that assets under administration for both its leveraged and non-leveraged businesses are close to record highs. This is an important statement because the company is mulling breaking up the businesses into two, which might well be beneficial to shareholders. The fact that they continue to be healthy is encouraging. I also like that the company follows up with the statement that “It is progressing well with its strategic initiatives, including the ongoing development of the UK non-leveraged investment platform”, which bodes well for the future.
What I’d do now
In sum, what I am saying is this. The FTSE 250 stock has no doubt had a fall from grace recently. Its performance has softened, dividends have been cut and the share price has tumbled gloriously. Speculation of a splitting of the company into two parts could have added further to investor uncertainty about the stock.
Yet, I believe that precisely because of these developments, there is a whole lot to like about CMC Markets now. Its share price decline means that its market valuation is at an unbelievably low number considering its earnings guidance for the next financial year. And it remains a profitable stock. Moreover, the split-up of the company might just be a good thing for shareholders — we will have to see. If I had not bought the stock already, I would definitely buy some of it now in anticipation of both growth and dividends in the future.
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Manika Premsingh owns CMC Markets. 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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