Today I’m looking at a trio of FTSE 250 high-yield dividend stocks I’d consider buying for an income portfolio.
These three shares offer an average dividend yield of about 5.5% and have a track record of dividend growth. So they could be a good starting point for a retirement portfolio.
Long-term focus
Major infrastructure projects like motorways and power stations are designed to provide reliable service for many decades. This usually means that they provide a regular stream of income for their owners.
As private investors, we can’t invest directly in such projects. But there are a number of London-listed firms which specialise in infrastructure investment. One of my favourites is HICL Infrastructure Company (LSE: HICL).
This £2.8bn investment trust owns stakes in 118 projects as varied as roads, government buildings, schools and water treatment plants. Most are in the UK, but HICL is also active in countries including Australia, Canada and the USA.
The firm’s dividend has risen by an average of 2.3% per year since 2011, keeping pace with inflation. That may not seem much, but shareholders who bought the stock seven years ago are now enjoying a 7% annual yield on the original cost of their shares.
One risk is that as interest rates rise, asset prices will fall due to higher finance costs. A second risk is that political policies governing the private ownership of public infrastructure will change. But in my view, HICL’s diverse portfolio should minimise these risks. I’d be happy to buy these shares for their 5% dividend yield.
An overlooked cash cow
Another high-yield stock I’m keen on is Phoenix Group Holdings (LSE: PHNX). This insurance firm doesn’t sell new policies. Instead, it buys up so-called closed books of life insurance policies from other insurers and runs them off.
The group’s large size and specialist focus means it enjoys attractive economies of scale. Careful management has seen Phoenix become an impressive cash cow. The group generated £653m of cash last year, up from £486m in 2016.
Management expects to generate £2.5bn of cash between 2018 and 2022, equating to around £4.33 per share. That’s about 60% of the current market cap. Although not all of this cash will be returned to shareholders, this guidance suggests to me that the group’s forecast yield of 6.5% should be fairly safe.
A high-yield growth opportunity?
Phoenix and HICL both offer high dividend yields. But I don’t expect them to deliver big share price gains. If you’re looking for an opportunity with income and growth potential, then it might be worth considering home and motor insurance firm Hastings Group (LSE: HSTG).
Hastings’ share price has fallen by about 13% so far this year, in line with the wider drop in this sector. But although expectations have slipped, this fast-growing group is still expected to deliver an earnings per share rise of 10% in 2019.
Performance so far this year looks encouraging to me. Operating profit rose by 22% to £105m and the number of live customer policies rose by 6% to 2.7m. Hastings now has a 7.5% share of the UK private car insurance market, up from 7% one year ago.
Management says that full-year results should be in line with expectations, putting the stock on a forecast P/E of 12 with a 5% dividend yield. At this level, I’d be happy to buy.
