The ten highest dividend yields in the FTSE 250

The average FTSE 250 dividend yield is around 2.4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income investors to buy.

The FTSE 250 is a market index made up of 250 mid-cap equities traded on the London Stock Exchange. The 250 companies that make up the index are not big enough to be included in the FTSE 100, but they are still some of the UK’s largest publicly-traded enterprises. The constituents make up approximately 15% of UK market capitalisation.

The index also tends to be a better barometer of UK economic activity as around half of FTSE 250 company revenues are generated in Britain, compared to less than 30% for the FTSE 100. 

The FTSE 350 combines both the FTSE 100 and FTSE 250. 

The FTSE 250’s strong dividend credentials 

According to funds group Link, publicly-traded UK companies are set to pay out £92bn to shareholders in 2022, including one-off payments. FTSE 100 corporations account for the bulk of the total, paying out around £81bn.

Oil and commodities stocks are the biggest prospective payers, as prices of key resources have surged in recent months. Still, there’s also plenty of growth projected elsewhere as businesses continue to recover from the pandemic. 

As of 20 July, the FTSE 250 dividend yield stood at 3.8% compared to 3.7% for the FTSE 100. Here’s a list of the ten highest-yielding stocks in the FTSE 250 and our favourite picks for income. 

Company

Dividend per share (DPS) for 2022*

DPS for 2023*

Dividend yield (%)

Dividend growth (%)*

Forward p/e*

Diversified Energy

17c

17c

13

6.4

N/A

Jupiter Fund Management

17p

17p

11.9

0

10.3

Direct Line Insurance

22p

24p

11.5

5.6

8.4

TP Icap

10p

12p

9.5

9.5

4.8

Ashmore

17p

17p

8.4

0

10.8

Liontrust Asset Management 

70p

71p

7.8

0

8.3

Vistry

75p

77p

8.5

25

6.1

Ninety One

13p

13.4

7

1

10.7

Dunelm

58p

48p

7.4

-17.9

9.9

Reach

7.5

7.8

7.4

4.3

3.1

*Refinitiv broker estimates

The list is dominated by financial services companies: Jupiter Fund Management (LSE: JUP), Direct Line (LSE: DLG), TP Icap (LSE: TCAP), Ashmore (LSE: ASHM), Liontrust (LSE: LIO) and Ninety One (LSE: N91)

However all of these businesses have significant issues to contend with. 

Ashmore, Liontrust and Jupiter Fund Management are all fund managers, which are struggling to compete with cheaper passive alternatives. Market volatility is also having an impact on investment flows, which is likely to hit profitability in the near future. 

Liontrust is the perfect example. The firm has seen explosive growth in assets under management in recent years, but that trend has now gone into reverse. The company reported a £0.5bn outflow in the three months to the end of June, even though it won Group of the Year for the second year running at Incisive Media's Fund Manager of the Year Awards

Investment manager Ninety One is battling similar headwinds. City analysts are forecasting a 16% drop in earnings this year and flat earnings next year as competitors nip at its heels. With profits at all of these companies under pressure, I think their dividends are standing on shaky ground

Meanwhile, TP Icap specialises in voice broking for complex financial instruments, which is facing pressure from automation. The stock’s low valuation of just 4.9 times forward earnings suggests that the market does not have much confidence in its growth potential. And Direct Line warned that its insurance losses would exceed expectations last week. While the company has said it’s committed to its dividend, rising losses are never a good look for an insurer. 

The highest-yielding stock in the FTSE 250, Diversified Energy (LSE: DEC) produces hydrocarbons, mainly gas, from wells in North America and it supports the highest dividend yield in the FTSE 250. The firm is able to pay a high dividend while still investing for growth as it uses an expansive hedging strategy to mitigate volatile hydrocarbon prices. This strategy is producing great results, and as a result, this stock could be a great income play for investors who are comfortable with investing in the oil sector. 

Vistry (LSE: VTY) is one of the country’s top-five homebuilders, and while this sector is struggling against some strong inflationary headwinds, demand for new properties is still booming. 

However, the market seems to be overlooking its potential. Vistry recorded a 41% increase in home completions last year, as the average selling price ticked up to £305,000. Further output growth is expected in 2022, although the stock’s low valuation implies otherwise. This could be an opportunity for investors to snap-up an undervalued income and growth play. 

With earnings set to continue growing, it certainly looks as if the business can continue to afford its 9% dividend

Homewares retailer Dunelm (LSE: DNLM) saw profits jump in the pandemic and management has been redeploying this capital back into the business to drive growth. With earnings set to expand by 20% this year, it seems as if the group’s 7.2% dividend yield is well covered by profits. While I’m not the biggest fan of the retail sector, this company’s dividend looks appealing from an income perspective. 

Finally, publisher Reach (LSE: RCH) is a new entrant to the list. While the company is expected to report more than £100m of net profit this year, more than covering the projected £22m cost of the dividend, it seems the market thinks otherwise with the stock selling at a depressed forward price/earnings (p/e) ratio of less than 4. With profits surging, I think the market is overly pessimistic about Reach’s prospects. 

Disclosure: Rupert Hargreaves owns shares in Direct Line.

SEE ALSO:

How to find the best stocks with dividends
Five dividend stocks to beat inflation
The ten highest dividend yields in the FTSE 100
The ten highest dividend yields on Aim
The ten investment trusts with the highest dividend yields

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