Over the years, I’ve found that the FTSE 250 is a good place to start hunting for passive income. Today, I’m going to look at three stocks from the mid-cap index that I see as good choices for reliable dividend growth.
15 years without a cut
My first pick, utility reseller Telecom Plus (LSE: TEP), hasn’t cut its dividend since 2007. During that time, the payout has risen by an average of 13% per year to its current level of 64p per share.
This business owns Utility Warehouse, which sells home energy, broadband, and mobile services through an army of self-employed agents.
Telecom Plus has a long-term energy supply deal with Eon that made it the cheapest energy supplier in the UK last year. This provided a massive boost for the business — pre-tax profit rose by 46% during the six months to 30 September.
I don’t expect this incredible pace of growth to continue, but the stock’s forecast yield of 4% looks safe to me. Management is highly experienced, led by chairman and shareholder Charles Wigoder.
My main concern is that UW’s unusual sales model could one day run into problems. However, the group has been trading successfully in this way for nearly 30 years. This gives me confidence that a sudden collapse is unlikely.
I view Telecom Plus as a good choice for income investors.
IT pays reliable dividends
My next pick is IT specialist Computacenter (LSE: CCC). Like Telecom Plus, this business has expert long-term management and founder shareholders.
Computacenter is one of the UK’s largest IT resellers. The group supplies hardware, software and IT services to its customers, who are mostly large corporate and public sector organisations. The business also operates in France, Germany and the US.
Sales received a huge boost during the pandemic, due to work-from-home demand. Things have calmed down since then, but management says it’s still “as bullish as we have ever been” about the long-term opportunities for the business.
I think there’s a risk that a recession could result in a poor year. But Computacenter’s 3% yield looks very safe to me. It’s worth remembering that this dividend has risen by an average of 16% per year since 2007 — an inflation-beating rate of growth.
A reliable, everyday purchase
My final choice is soft drinks firm Britvic (LSE: BVIC), whose UK brands include Robinsons, Tango and Rockstar.
Britvic’s appeal to me lies in its defensiveness. Its popular brands are affordable, everyday purchases. Some buyers may trade down to supermarket own brands, but my guess is that most customers will continue to purchase their regular favourite drinks.
Analysts expect Britvic’s profits to be broadly flat this year, before returning to growth in 2023/24. I don’t see much to worry about in terms of performance.
My only slight concern is that the group’s debt levels are a little higher than I’d like to see. However, this situation has been managed successfully for some years. Debt is now expected to fall as spending eases.
Britvic shares offer a forecast yield of 3.7%, with a record of continuous payouts stretching back to 2006. I see the shares as a low-risk pick for income.
