Why I think FTSE 250 dividend stocks could make you an ISA millionaire

The FTSE 250 (INDEXFTSE:MCX) could deliver impressive returns that boost your ISA’s performance in Peter Stephens’ opinion.

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The FTSE 250 may not seem to be an obvious place to invest at present. After all, the UK is facing a period of uncertainty in both a political and economic sense. With the index more focused on the performance of the UK economy, rather than on the global economy as per the FTSE 100, it could therefore experience a period of volatility.

This, though, may present investors with an opportunity to buy high-quality companies at discounts to their intrinsic values. As such, now could be a good time to buy a range of FTSE 250 dividend stocks that may offer strong growth credentials over the long run. Doing so could improve your chances of becoming an ISA millionaire.

Uncertain outlook

Although the UK economy may experience a challenging period due to Brexit, that scenario is not guaranteed. As ever, it’s impossible to accurately predict the economic outlook, as it’s highly dependent upon a variety of decisions by lawmakers that have yet to be made.

While this uncertainty may cause investors to naturally become increasingly cautious, history shows it’s during such periods when the most opportune moments to purchase shares become available. In other words, buying when other investors are fearful, and when valuations are low, can lead to higher returns in the long run.

Certainly, there may be paper losses in the near term depending on how the economy performs. But with the UK economy having recovered from every recession and political difficulty faced in the past, buying during market corrections and bear markets has historically proven to be a sound strategy.

Valuations

Since a large number of the FTSE 250’s members offer dividend yields in excess of 4%, and even 5%, it may be possible for an investor to build a diverse portfolio of companies that offer an income return significantly in excess of inflation.

Furthermore, with the FTSE 250 historically offering stronger growth rates than the FTSE 100, mid-cap income shares may be able to produce higher dividend growth rates over the long run. This may not only boost an investor’s income, but could also lead to higher demand for a particular stock among a wider pool of investors. After all, a company that’s able to deliver a rapid rate of dividend growth could signify financial strength and management optimism in its future prospects. In turn, this may increase interest among growth and income investors alike, thereby catalysing its share price.

Takeaway

By investing in mid-cap shares that offer wide margins of safety, relatively high yields, and dividend growth potential, it may be possible to generate strong returns in the long run. While uncertainty may persist for some time, over a longer term buying during periods of economic and political turbulence could improve your chances of making a million.

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.

Peter Stephens has no position in any of the shares mentioned. 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.

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