Why I’d buy these FTSE 250 dividend bargains

These FTSE 250 (INDEXFTSE:MCX) stocks offer above-average yields and good dividend diversification.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It can pay to look beyond the FTSE 100 to diversify your dividend stream. A number of stocks in the second-tier FTSE 250 fit the bill in this respect.

Today, I want to tell you about two mid-cap gems, which not only offer diversification, strong long-term records of shareholder returns and bright payout prospects, but also above-average yields at their current share prices. As such, these are dividend bargains I would buy today.

Set fair

The UK’s leading self-storage company Big Yellow Group (LSE: BYG) issued a trading update this morning ahead of its AGM. This showed the company has made solid progress in the three months since its 31 March financial year-end.

Average net rent per square foot was little changed on the same period last year but with the company driving up occupancy levels to 82% from 78%, like-for-like revenue and total revenue both increased by 5%.

Management sees scope to increase occupancy beyond its current target of 85% and with new space also coming on tap in 2018, the company looks set fair to deliver continuing earnings and dividend growth.

30-fold dividend increase

City analysts are forecasting a 9.4% increase in the dividend to 30.2p from last year’s 27.6p. This gives a prospective 3.85% yield at a current share price of 785p.

The dividend will have more than tripled from the 9.5p paid ahead of the financial crisis and increased more than 30-fold since the 1p maiden payout in 2003. This is an impressive record but it should be noted that it was punctuated by a suspension in 2009.

As a Real Estate Investment Trust, regulatory requirements determine the level of the Property Income Dividend (PID) payable by the group. No PID was payable in 2009 and management also elected to suspend the discretionary component of the total dividend. This was in order to take advantage of the adverse conditions in the property market and consolidate the company’s market-leading brand position.

While 2009 was a barren dividend year, the wisdom of the board’s decision has been borne out by the strength of the returns to shareholders since.

Predictable and sustainable payouts

The total dividend return of HICL Infrastructure (LSE: HICL) hasn’t been as large as Big Yellow’s, having increased from a maiden 6.1p after its 2006 flotation to 7.65p for its financial year ended 31 March. However, HICL has lifted its payout each and every year — that’s to say, including through the financial crisis — and having such a steady payer in a portfolio is advantageous in this respect.

The company’s reliability stems from its business as a long-term equity investor in infrastructure projects (primarily in the UK but also in Europe, North America and Australia). Its portfolio of over 100 investments has a weighted average concession life of 32.1 years and the company’s “principal objective” is “to deliver predictable and sustainable dividends” underpinned by its stable, inflation-correlated cash flows.

HICL is targeting a payout of 7.85p for its current financial year, followed by 8.05p next year. This gives a prospective yield of 4.91%, rising to 5.03% at a current share price of 160p.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester 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

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »