The FTSE 100 is a popular place for global investors seeking a second income. But restricting oneself to companies on the UK’s leading share index may be a mistake. The FTSE 250 is also packed with top passive income shares.
Take shipping giant Clarkson (LSE:CKN) as an example. The company has raised its annual dividend for 20 straight years. And on the basis of recent strong trading I’m expecting this impressive record to continue.
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Heres why I’d buy it for my own UK shares portfolio today if I had cash to spare.
More record profits
Last week Clarkson’s share price sprang higher after the shipbroker — which also provides financing, logistics services and maritime research — increased its earnings forecasts for 2023.
The company said it enjoyed “strong trading throughout the final quarter [and] particularly from the Broking division”. Consequently, it said it expected underlying pre-tax profits to of “not less than £108m” last year, up from £100.9m in 2022.
This would represent the third consecutive year of record profits.
Strength in depth
Clarkson’s continued strength is especially impressive given that charter rates have been much lower of late.
The ClarkSea Index — a weighted average index of earnings for major vessel types — dropped 37% year on year in 2023. And it could remain under pressure over the short term as the global economy splutters, producing more headwinds for the shipping industry.
However, Clarkson has several weapons in its arsenal to reduce this threat. Its exposure to less cyclical shipping segments helps offset trouble elsewhere.
Moreover, its position of market leader across multiple sub-sectors makes it the go-to company in a world where shipping transactions are becoming increasingly complex.
More dividend growth
| YEAR | DIVIDEND PER SHARE | DIVIDEND YIELD |
|---|---|---|
| 2022 | 93p | 2.7% |
| 2023 | 97p (f) | 2.8% |
| 2024 | 102p (f) | 2.9% |
| 2025 | 108p (f) | 3.1% |
Looking at dividends again, City analysts are expecting Clarksons dividends to continue rising over the short term, as the table above shows.
The shipbroker looks in great shape to meet dividend forecasts. For 2024 and 2025, predicted dividends are covered 2.1-2.4 times over by anticipated earnings. Dividend cover of 2 times and above provides a wide margin of error.
On top of this, Clarkson has a strong balance sheet it can use to help it continue growing dividends, as it has done in the past. During the first half of last year it reported free cash flow of £128.1m.
Full steam ahead?
On balance, I think Clarkson is one of the best dividend stocks to buy on the FTSE 250 today. It has made a nice habit of beating earnings estimates over the past few years. And its robust balance sheet gives it scope to make profits-boosting acquisitions as well as continue raising dividends.
Rising costs due to items like systems upgrades and staff training remain a danger. But the company’s resilience in spite of this issue is encouraging.
Analysts at Liberum have commented that “over the long term, we see Clarkson benefitting from a structural shortage in shipping capacity and the uncertainty and complexity created by the need for the shipping industry to decarbonise.”
It may or may not be the greatest, but I think the shipbroker could help me grow my passive income for years to come.
