Dividend investors could stand to benefit from the inclusion of FTSE 250 stocks in their portfolios. The FTSE 100 may have a higher weighted average yield, but dividends are set to grow significantly higher for FTSE 250 shares this year. The greater domestic focus of mid-cap companies would make them well placed to benefit from the recovery of the UK economy. Although mid-cap shares tend to exhibit greater volatility than those of larger companies, the returns on large-cap shares often underperforms their smaller peers in a bull market.
Unite Group
Unite Group (LSE: UTG) had raised its dividend by 133.3%, to total 11.2 pence per share in 2014. Analysts expect dividend will increase by another 20% this year, which gives a forward dividend yield of 2.2%. The developer and operator of student accommodation partners with over fifty higher education providers to provide affordable accommodation for students near university campuses. Rising university enrolments and limited supply growth in affordable accommodation means that the outlook for the sector remains bright.
However, Unite trades at a 41% premium to its net asset value (NAV). With the expected return on average investments not much more than 6%, its shares seem relatively expensive. By comparison, Land Securities and British Land, two large real-estate companies, are currently valued at less than a 5% premium to NAV.
Bovis Homes Group
Bovis Homes Group (LSE: BVS) raised it 2014 dividends by 159.3%, to total 35 pence per share. The company is expected to increase dividends by another 13.9% this year, which gives a prospective dividend yield of 4.3%. Margins at the house builder have steadily risen with higher market prices and as it focuses on higher value homes. The company is also rapidly expanding its land bank and accelerating new build construction.
Bellway
House builder, Bellway (LSE: BWY), raised its dividends by 73.3% for 2014. Analysts expect the dividend will increase by another 37% in 2015, which represents an indicative yield of 3.1%. The payout is comfortably covered, with earnings worth more than three times its dividend payment, and net debt is low. Earnings in the company’s 2015 first half rose 56.1% to 103.5 pence per share, on strong sales and price improvements in London.
Crest Nicholson
Crest Nicholson (LSE: CRST), another housebuilder, increased its dividend by 120.0% in 2014. The dividend is covered 2.75x by earnings; but as the company matures, it expects to raise the payout ratio to 50%. Crest Nicholson geographical focus on London and the South-East differentiates the company, as its developments benefit from higher average selling prices and gross margins. Analysts expect the company to raise its dividend by another 36% in 2015, which gives an indicative dividend yield of 3.6%.
However, the dividends paid by these three companies are usually much more volatile, as the housebuilding sector tends to be highly cyclical. Nevertheless, the shortage in the supply of new affordable housing means the sector is likely to remain attractive for some time. In addition, there is the prospect of additional government support for new home buyers.
Man Group
Man Group (LSE: EMG), the alternative investment manager, has been undergoing painful restructuring since it suffered massive outflows after the financial crisis in 2007/8. Since then, the company managed to attract new investors and reduced its dependence on AHL, its algorithmic trading division. However, the recent trading statement showed the fragility of the firm’s turnaround plans, as it suffered net outflows of $1,3 billion in the first quarter of 2015. Nevertheless, funds under management rose 7% to $78.1 billion, as investment gains outweighed net outflows.
With a forward P/E ratio of 13.3, its shares are attractive. The indicative dividend yield of 4.0% represents expectations that the dividend would increase by 12.5%, which follows dividend growth of 27.8% already made in 2014.
