When picking stocks for your portfolio, it’s tempting to focus on well-known names. But by doing this you could be missing some of the best dividend shares in the market.
The FTSE 250 contains a number of companies most of us have never heard of. They operate behind the scenes of industry and commerce but are still sizeable, important businesses.
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Today, I want to look at two such companies in that index, both of which I think have impressive and overlooked income qualities.
Protecting you from disaster
Specialist insurance group Beazley (LSE: BEZ) isn’t a company who will insure your car. But if you own large assets that need protection from risks including natural disasters, cyber-attacks, and terrorism, then Beazley might be able to help.
Pre-tax profit fell 55% to $76m at the £3bn firm last year, as its policies paid out claims for US hurricane damage, Californian wildfires, and Japanese typhoons. However, I’m pleased to see the group has remained profitable despite those high level of claims last year.
The good news is that higher levels of claims tend to support price rises which, in turn, support future profit growth. That certainly seems to be true here. The rates charged on policy renewals rose by 3% in 2018, compared to a 1% fall in 2017.
Dividends + growth
Beazley is also continuing to expand, most notably in the US. Gross premiums written — the value of all insurance sold by the firm — rose by 12% to $2,615m last year. The US business underwrote more than $1bn of premiums for the first time.
The company’s dividend will rise by 5% to 11.7p per share this year, giving a useful 2.2% yield. Because of the high level of claims, no special dividend will be paid. However, these payouts provide a useful boost in quieter years. For example in 2016, shareholders received a special dividend of 10p per share on top of the ordinary payout.
In my view, insurance dividends such as these are a good way to diversify your portfolio. After today’s figures, I’d continue to rate Beazley as a long-term buy for income and growth.
The ultimate long-term income?
Another dividend stock I rate highly is HICL Infrastructure (LSE: HICL). This investment portfolio invests in projects such as roads, schools, hospitals and utility businesses in the UK and other developed markets.
It’s set up to deliver reliable long-term cash flows, most of which are returned to shareholders in the form of dividends.
At the time of writing, HICL’s stock was trading at 165p, slightly above its net asset value of 156p per share. This suggests the stock is fully priced, but the shares still offer an attractive forecast dividend yield of 4.9% for 2019.
The structure of the group’s investments means that the income they provide tends to rise with inflation. This has been reflected in HICL’s dividends, which have risen by an average of 2.4% per year since 2013.
In my opinion, this is an excellent buy-and-hold stock for investors wanting a reliable income from long-term assets.