Many investors buy FTSE 100 dividend stocks to provide an income for their portfolio. However, while this is a perfectly acceptable strategy, I think there are probably more high-quality dividend stocks in the FTSE 250.
With that in mind, here are three FTSE 250 dividend stocks I’d buy with £3k today.
FTSE 250 dividend stocks
Grainger (LSE: GRI) is one of the UK’s largest landlords. The company can use its size and scale to buy properties with funding at low rates. Economies of scale allow the firm to manage these properties without incurring high costs.
As a result, the stock has become an income champion. Its payout has grown at a compound annual rate of 5.4% for the past decade, and that track record looks set to continue. The pandemic’s impact on the business has been minimal and its dividend is covered 2.6 times by earnings per share. That suggests to me the company could more than double the distribution without having to cut corners elsewhere. Meanwhile, the dividend is backed by income from rental properties.
Therefore, while Grainger’s yield of around 2% might not be the highest on the market, I’d buy the company as part of a portfolio of FTSE 250 dividend stocks, thanks to the quality of the payout.
Asset-backed
I’d buy 3I Infrastructure (LSE: 3IN) for similar reasons. This company’s primary business model is to invest in infrastructure and other assets that generate a sustainable return.
The overriding aim of management is to provide shareholders with a sustainable return of 8% per annum. Over the past 10 years, the company has met and exceeded this target producing a total return for investors of around 12% per annum.
3I has produced this return through a combination of income and capital growth. The stock currently supports a dividend yield of around 3.3%. This payout has grown at a compound annual rate of around 6% for the past seven years.
The group also has a high level of dividend cover. The distribution is covered 2.4 times by earnings per share. Again, this suggests the distribution is secure and 3I has the potential to increase the payout further.
This is yet another FTSE 250 dividend stock that could produce investors with a steady income stream backed by real assets.
Cash-rich
A company that’s benefited significantly from the volatility that’s dominated stock markets in 2020 is CMC (LSE: CMCX). This business makes money every time a customer places a trade on its platform. Therefore, high levels of trading translate into higher levels of income for the group.
Over the past 12 months, activity on the group’s trading platforms has surged and, as a result, so have CMC’s profits. Rising profits have enabled the organisation to cement its position as one of the top FTSE 250 dividend stocks. It currently offers a dividend yield of around 5.8% and the distribution is covered nearly three times by earnings per share.
Not only is the company’s dividend well covered by profits, but CMC’s balance sheet is also stuffed full of cash. The group has no debt and profit margins are more than 40%. I think this suggests the business will remain a dividend champion for many years to come
