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.
At the end of May, the FTSE 250 dividend yield stood at 2.5% compared to 3.4% 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 | Ticker | Dividend per share | Div yield (%) | Div growth (%)* | Forward p/e* | |
2022* | 2023* | |||||
Diversified Energy | 17c | 17c | 12.5 | 5.7 | N/A | |
Jupiter Fund Management | 17p | 17p | 11.2 | 0 | 8.8 | |
TP Icap | 10p | 11p | 9.6 | 9.5 | 4.9 | |
Direct Line Insurance | 23p | 23p | 9.4 | 1.7 | 9.7 | |
Vistry | 60p | 76p | 9 | 22.3 | 5.9 | |
Ashmore | 17p | 17p | 8.1 | 0 | 10.9 | |
Lancashire Holdings | 16c | 38c | 7.9 | 89.9 | 6.4 | |
IG Group | 43p | 51p | 7.4 | 1 | 7.7 | |
Liontrust Asset Management | 58p | 68p | 7.3 | 38.4 | 8 | |
Ninety One | 15p | 14p | 7.2 | -4 | 10.5 | |
*Refinitiv broker estimates
The list is dominated by financial services companies: Jupiter Fund Management, Direct Line, TP Icap, Ashmore, IG Group, Liontrust, Ninety One and Lancashire Holdings.
However all of these businesses, with the exception of Direct Line, Lancashire Holdings and IG Group, have significant issues to contend with.
The fund management groups, Jupiter, Ashmore and Liontrust, are struggling to compete against cheaper passive fund offerings. What’s more, market volatility may exacerbate fund outflows, putting further pressure on management fees. As such, I’m not entirely convinced that they can maintain their payouts at current levels.
Meanwhile, TP Icap (LSE: TCAP) 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. While competitive forces may also hit growth at IG, the financial services group is better positioned to deal with these challenges due to its large international footprint and heavy investments in technology.
By contrast, insurer Direct Line (LSE: DLG) is dealing with inflation by raising prices and prioritising quality over quantity. This will hit the company’s top line, but it should also protect profits.
Lloyd’s of London insurer Lancashire Holdings (LSE: LRE) is also beating inflation with price rises. These are the reasons I own both stocks in my portfolio, even though the market does not seem keen on the strategy (yet).
What about the rest?
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.
Disclosure: Rupert owns shares in Direct Line and Lancashire Holdings.
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