Is this the best dividend stock outside the FTSE 100?

The FTSE 100 (INDEXFTSE: UKX) is known for its big dividends. But have you checked out these FTSE 250 (INDEXFTSE: MCX) dividend-payers?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When looking for dividend stocks, many investors tend to stick to the FTSE 100. That’s understandable, as the large-cap index is home to many high-yielding firms. Its average yield is currently 3.2% on a forward-looking basis.

However, what many investors don’t realise, is that the Footsie’s little brother, the FTSE 250, also contains a large number of dividend-paying stocks. Here’s a look at two of them that currently yield over 4%.

Bellway

Housebuilder Bellway (LSE: BWY) has been an absolute cash cow over the last five years. Growth of the company’s dividend has been nothing short of phenomenal, with the payout rising from 20p to 122p per share, a compound annual growth rate (CAGR) of an incredible 44%. City analysts expect a payout of 136p per share this year, which equates to a yield of 4.1%. Is there more dividend movement to come?

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Bellway certainly seems to be enjoying a purple patch right now. The company advised in a trading update this morning that “market conditions continue to be favourable and customer demand for new homes remains strong.” For the first half of the year, housing revenue is expected to rise at least 14% to approximately £1.3bn, with the average selling price increasing by 7.8% during the period, to a record £276,000.

This positive momentum leads me to believe that Bellway can keep rewarding shareholders with big dividend payouts in the near term. Dividend coverage is expected to be around 3.1 times this year, indicating that the housebuilder can comfortably afford it payout. The stock also looks quite cheap on a forward P/E of under eight.

On the bear side, investors should note that during economic downturns, housebuilders can struggle. It’s a highly cyclical business. This means dividends can dry up. Something to keep in mind, if you depend on your dividends for income.

Greene King

Another FTSE 250 stock paying a large dividend to its investors is pub owner Greene King (LSE: GNK). The shares are heavily out of favour right now and have fallen nearly 30% in a year. That’s pushed the yield up to over 6.5%. Worth buying for the big yield?

The hospitality industry is going through a tough patch at present, with conditions described as challenging. The UK consumer is spending more cautiously and there are cost pressures affecting the pub sector. Greene King’s like-for-like sales for the first 37 weeks of the year declined 1.4%.

Having said that, I can see the appeal in taking a long-term position in Greene King right now. For starters, a 6.5% yield looks very attractive in today’s low interest rate environment. And the company has increased its dividend every year since 1997. That’s an excellent track record. Furthermore, while profitability is muted right now, dividend coverage still looks very solid. Analysts expect earnings per share of around 64p for FY2018, resulting in coverage of 1.9 times last year’s payout.

Also, the valuation of the stock looks extremely cheap. On estimated FY2018 earnings, the forward P/E ratio is 7.9. The trading environment is tough right now, but with a yield of 6.5% on offer, you can buy now and get paid to wait for the turnaround.

Is this a top choice for growing wealth now?

Before deciding, we think this pick is another must-see.

Discover ‘One Top Growth Stock from The Motley Fool’ absolutely FREE.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent double-digit revenue growth. ‘Return on capital’ - a key measure of business quality - is a colossal 57%. That’s almost 6 times higher than the UK average!

Best of all, it has a cult-like following. Customers who’re raving fans, potentially spending more money, more often - whatever the economy.

In our experience, discoveries like this are extremely rare.

So please, don’t leave without seeing, ‘One Top Growth Stock from The Motley Fool’, which includes both the Risks and opportunities.

Claim your FREE copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Greene King. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »