With stock markets shaky, a lot of dividend shares are looking cheaper. And I don’t just mean the big FTSE 100 ones.
No, I’m looking for FTSE 250 dividends, and there are some good ones there too. So let’s start with the three biggest forecast yields, based on what Yahoo! Finance says.
#1: Diversified Energy Company
Diversified Energy Company (LSE: DEC) is on a 15.5% yield. The shares have fallen, which boosts it, but they’re still up 15% over five years.
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The firm has just posted 2022 results, and raised its dividend by 6%. But it also posted a net loss of $620m. And there are lots of non-cash adjustments in these results.
We saw free cash flow of $219m, but $566m invested in new oil and gas acquisitions.
That’s the core business model, to buy up old gas wells. But it takes a lot of cash to do it. So we’ve seen fundraising this year, and there’s big debt. The balance sheet shows $1.17bn in borrowings.
The yield looks attractive, but I can’t square it with this unusual cash flow model. I just can’t tell if it’s sustainable, so it’s a no for me.
#2: Target Healthcare REIT
Target Healthcare REIT (LSE: THRL) is one I do understand. It’s a real estate investment trust, and owns care homes in the UK, which it rents out.
The recent share price fall is surely due to the market shunning anything related to property. But it’s helped boost the dividend yield, to 9.7% now.
Forecasts suggest the trust should maintain it in the next two years too, so that looks good.
The valuation is a bit high though, with a price-to-earnings (P/E) ratio of around 30. And that’s the biggest risk for me.
Still, it’s predicted to fall next year. But it’s early days to be trusting 2024 forecasts too much. As for 2023, Target is due to post first-half results on 27 March.
I rate this one as a buy candidate for long-term income investors.
#3: Sequoia Economic Infrastructure Income Fund
The third biggest FTSE 250 yield comes from Sequoia Economic Infrastructure Income Fund (LSE: SEQI). This time, we’re looking at an 8.6% yield.
Sequoia is a fund that puts its money into various debt-based investments. It’s mostly based on funding infrastructure projects.
And that could explain why the share price is down 24% in five years. You know, that pandemic thing and the chaos it caused.
I’d need to dig a lot deeper into the business model and the books here. But at least with this one, I don’t see anything weird at first sight.
The fund’s February net asset value came in at 93.1p per share, a bit down on January. But that puts the shares on a discount of 14%. It looks good to me, but I need to do more research.
Verdict
I think there are a lot of overlooked income shares in the FTSE 250. But there’s more risk too.
A few weeks ago, the top three would not have been the same, but we’ve seen dividend cuts.
Still, I like the look of two of these three, at least.
