FTSE 250 stocks are well known for their long-term growth potential. After all, the UK’s second flagship index is primarily home to mid-cap and some small-cap companies battling their way into the FTSE 100. And yet investors often overlook the fact it also contains some lucrative dividend opportunities.
With the economy going through a bit of a wobble, share prices generally have declined significantly over the last 12 months. However, that doesn’t necessarily mean the underlying businesses are being disrupted. In fact, three companies in particular have seen their valuations slashed despite growing cash flows.
This translates into a higher yield that’s likely sustainable for prudent investors.
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Real estate opportunities
Two stocks that have caught my attention this month are Warehouse REIT (LSE:WHR) and Safestore (LSE:SAFE). Both provide storage solutions. But the key difference is Warehouse REIT caters primarily for e-commerce businesses while Safestore is focused on consumers needing extra storage space.
Both firms benefit from switching costs since it’s challenging for customers to just pack up and leave. And their expansive network of facilities across the UK grants them access to a far wider portion of their target markets.
With interest rates on the rise, the cost of debt has increased substantially over the last 12 months. That’s particularly problematic for real estate groups since the cost of servicing mortgages is rising. With that in mind, it’s not too surprising that investors have been busy selling off their shares.
However, a closer look at the most recent earnings reports reveals that both firms are still delivering rental income growth. And since that’s what ultimately funds shareholder dividends, the respective 6.5% and 3.2% yields of these FTSE 250 stocks make them especially attractive today. At least, that’s what I think.
A renewables stock
Transitioning to a fully renewable energy grid is an ambitious goal that will take decades to complete. But the UK is already making significant strides toward this objective. In fact, over the last 12 months, 34.8% of British electricity was generated from renewable sources — 29.1% of which came from wind farms.
It just so happens that off the coast of Yorkshire is one of the windiest places on the planet. And to capitalise on this renewable resource, businesses have been busy building offshore wind farms that FTSE 250 stocks like Greencoat UK Wind (LSE:UKW) now own a stake in.
With operating margins in excess of 96%, the company has turned into a cash-generating machine. Just like the previously mentioned real estate groups, interest rate hikes have dampened investor sentiment. Moreover, the introduction of a new tax levy by the British government doesn’t exactly spark enthusiasm either. And yet even with these headwinds, the dividends keep on growing, with a yield now standing at a tasty 5.4%.
