The FTSE 250 fell sharply in June as worries about overheating inflation worsened. So today, Iâm scouring the index for brilliant bargains to buy.
I think investing in defence stocks could be a good idea right now. China and Russia have been busy building their military capabilities in recent years. And Western nations are likely to keep ramping up their own spending in response.
This is a trend that looks set to continue following Russiaâs invasion of Ukraine.
Strong trading
So which UK defence stocks have caught my attention? Well, following recent share price weakness, Iâm considering investing in Chemring Group (LSE: CHG).
This particular business manufactures sensors to detect chemical and biological attacks. It also makes countermeasure technology such as flares that military jets release to deflect missiles.
In the six months to April, Chemringâs revenues and underlying pre-tax profits rose 11% and 22% year-on-year respectively. Consequently, the firm elected to raise the dividend 19% to 1.9p per share.
The risks
Supply chain problems represent a danger to profits at defence companies. However, delays to the awarding of contracts are a more traditional danger that can impact near-term profits.
Chemring has endured order delays this financial year due to the budgetary stalemate in Washington at the start of 2022. Business wins expected in the first half have now been pushed into the second half.
The rewards
The unpredictable nature of contract timings isnât enough to discourage me from buying Chemring, though. I buy stocks with a long-term view and itâs my opinion that defence spending will rise strongly for years to come, driving profits at defence stocks.
Chemring also has a decent record of double-digit annual earnings growth under its belt. And this has reaped big rewards for dividend investors.
Another healthy profits increase last year prompted the firm to hike the full-year dividend 23% year-on-year to 4.8p per share. And City analysts think total rewards will soar to 5.8p this year and to 6.9p next year as profits keep rising. Forecasters reckon earnings will increase 17% and 1% in these years.
A top FTSE 250 dividend stock
Itâs worth noting that Chemringâs dividend yields arenât as big as many other UK shares. They clock in at 1.8% for this year and 2.2% for this year.
However, I think an investor can expect Chemring to make good on these near-term dividend forecasts. This is something that really appeals to me in the current economic environment.
Future dividend levels at many other dividend stocks are more unpredictable as the global economy teeters towards recession and corporate profits forecasts start to look fragile. Chemringâs operations arenât as sensitive to broader economic conditions as many other companies.
On top of this, projected dividends are covered between 2.9 times and 3.4 times by expected earnings over the next two years. This is well above the safety benchmark of 2 times.
All things considered, I think Chemring is a top dividend stock right now. Iâd buy it today and look to hold onto it for years.
The post A FTSE 250 dividend growth stock to buy right now! appeared first on The Motley Fool UK.
One Killer Stock For The Cybersecurity Surge
Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028 â more than double what it is today!
And with that kind of growth, this North American company stands to be the biggest winner.
Because their patented âself-repairingâ technology is changing the cybersecurity landscape as we know itâ¦
We think it has the potential to become the next famous tech success story.
In fact, we think it could become as big⦠or even BIGGER than Shopify.
More reading
2 British shares to buy using the Warren Buffett approach
Is this FTSE 100 stock the best housebuilder to invest in?
2 cheap dividend growth stocks Iâd buy as the economy sinks
Hereâs 1 FTSE stock primed to benefit from the current housing market!
Hereâs why this AIM-listed stock could be one of the best shares to buy!
Royston Wild 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.