I’m buying this cheap FTSE 250 share for big dividends!

Though it’s been a rough 2022 for global stock markets, London has been a peaceful port in this storm. The FTSE 100 index is down 3.1% since 31 December 2021, placing it among the world’s best-performing share indices. However, the mid-cap FTSE 250 index has slumped by 19.8% in 2022.

The FTSE 250 is in a bear market

The FTSE 250 index is actually in a bear market, having fallen over 20% from its previous high. The index hit an all-time peak of 24,353.85 points on 7 September 2021. On Friday, it closed at 18,833.80 points, down 5,520.05 points (-22.7%) from this record high. Yikes. Over the past 12 months, the FTSE 100 is up 4.6%, while the FTSE 250 is down 14.2%.

Bargain-hunting for cheap stocks

My wife and I amassed a hefty cash pile from taking profits in 2021-22. We’ve begun reinvesting this nest egg into a standalone portfolio of cheap shares in quality businesses. So far, we’ve bought six new FTSE 100 shares in three weeks.

However, noting the FTSE 250’s decline, I’ve started looking outside of the Footsie for lowly rated stocks. I’ve used various stock screeners to hunt down mid-cap ‘value shares’ (those trading on low price-to-earnings ratios and high dividend yields). And I’ve found one candidate that I’ll suggest to my wife as a potential steal. The cheap share that has caught my eye is Close Brothers Group (LSE: CBG).

I like the look of Close Brothers

This is a merchant-banking firm that provides securities trading, lending, deposit-taking and wealth-management services. The FTSE 250 firm is divided into five segments: Commercial, Retail, Property, Asset Management, and Securities. The business — which has been around since 1878 — employs around 3,500 people.

It deals with both individuals and small/medium-sized businesses, providing finance for asset purchases, property development, car buying, and insurance. It also offers financial advice and investment management to UK private clients.

Why I’m drawn to it

I like its resilient, widely diversified business model and income streams. To me, it looks like a mini-version of a retail/commercial/investment bank like, say, Barclays. It also owns leading market maker Winterflood Securities (this buys and sells shares for its own account to provide market liquidity), which made bumper profits during 2020-21’s market volatility.

But what really grabs me is its undemanding fundamentals. Here they are, based on Friday’s closing price.

Close Brothers shares are down almost a third over the past 12 months. As a veteran value investor, this has aroused my interest. However, there’s no doubt in my mind that we face a period of heightened financial volatility and uncertainty. Even so, this stock looks too cheap to me.

Currently, it trades on a lowly price-to-earnings ratio of 7.7, which translates into an earnings yield of 12.9%. This is more than double the stock’s generous dividend yield of almost 6.2%. Thus, even if the group’s earnings were to slide in 2022-23, this cash yield looks pretty safe to me. That’s why I intend to buy this cheap share next week. And that’s despite my worries about red-hot inflation, rising interest rates, war in Ukraine, and a global recession!