Should investors buy these cheap FTSE 250 income stocks in March?

This FTSE 250 Income stocks trade at rock-bottom multiples of earnings. Could it be a good way for investors to increase their passive income at low cost?

Marks and Spencer Group

Clothing and food retailers Marks and Spencer (LSE:MKS) has not paid a dividend for the past few years. But City analysts expect it to restart its payout policy from the current financial year and to raise shareholder rewards quickly.

The next dividend payment of 4.5p per share is on the cards next year. This results in a good starting yield of 2.8%.

Trading in the company has been more impressive of late – like-for-like sales rose 7.2% in the December quarter – and the drive to become a multichannel operator can help sustain this momentum and deliver long-term growth.

In January, it announced a £480m plan to revamp its store network to meet e-commerce opportunities. This will include the creation of 20 larger stores that will help the company exploit the ‘Click and Collect’ boom.

But I’m not yet convinced M&S is a good choice for income investors. As the economy splutters and high inflation remains, the outlook for profits and dividends remains highly uncertain.

The latest data on food inflation from the UK Retail Consortium makes for worrying reading. This represents an annual price increase of 14.5% in February, from 13.8% in the previous month. The rising cost of essentials is no small thing for shoppers to splurge on clothing and homewares.

I am also concerned about M&S’s ability to generate solid investor returns as competition in the clothing sector heats up. This has the potential to put profits and profits firmly back on track.

On balance, I think investors should swerve to buy retailer’s shares. Even a low price-to-earnings (P/E) ratio of 10.7 times wasn’t enough to change my mind.

Redrow

House builder Redrow (LSE: RDW) looks like a better dividend stock to me. And not just because it offers better value than Marks & Spencer, at least on paper.

For the financial year to June, it trades at a P/E multiple of just 6.2 times. The corresponding dividend yield is 5.6%, above the 3.1% average for FTSE 250 stocks.

I think Redrow’s long-term prospects are more exciting than those retailers. Britain has a severe housing shortage as weak building rates continue and the population continues to grow.

This does not mean that I will buy company shares for passive income. This is because the housing market is locked in a downturn that could damage dividend rates in the short to medium term. Redrow’s own order book fell by £400m year-on-year to £1.1bn from 1 January.

The latest national data showed average house prices fell 1.1% last month, the biggest drop in 10 years. Buyer demand is weak and could remain so as interest rates continue to rise and the economy worsens.

I believe Redrow can make huge profits over the next decade. That’s why I keep holding some FTSE 100 house builder in my portfolio. But I think investors might be better off buying more dividend stocks for market-beating earnings this year.