The Motley Fool

FTSE 250: 3 of the best stocks to buy for rising dividends

Hand holding pound notes
Image source: Getty Images.

When looking for income stocks to balance out my largely growth-focused portfolio, I know it’s tempting to search for companies returning the most money to their shareholders. However, I also think the best stocks to buy are usually those that are consistently raising their bi-annual or quarterly payouts. Here are three examples from the FTSE 250 I’m considering.

Investec

Asset manager Investec (LSE: INVP) is one stock that, 2020 aside, has reliably increased its dividends. I’m intentionally ignoring last year because a global pandemic (and the many dividend cancellations ) will hopefully prove an anomaly.  

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Based on data from Stockopedia, Investec is down to return 18.7p per share in the current financial year. This would represent a 44% hike to the total payout. At last Friday’s closing price of 298p, that becomes a monster yield of 6.3%. Importantly, this payout looks set to be covered well over twice by profits. In other words, it looks very secure. Another positive with Investec is that its shares look cheap at a little under 8 times earnings.

That said, it’s important for me to be aware that financial stocks such as Investec are vulnerable to economic setbacks. Should the global recovery slow, there’s a possibility that the INVP share price will lose momentum. The stock is also still to recover to pre-Covid levels. 

Redde Northgate

Integrated mobility platform Redde Northgate (LSE: REDD) supplies vehicles to businesses alongside maintenance, repair, recovery and accident services. That sounds dull as ditchwater. However, this is another FTSE 250 constituent with a good record of regularly raising its payouts. And when I’m looking for dividends, that’s all that really matters.

A 17.8p per share return is expected in FY22. That’s a yield of 4.1%. For perspective, the FTSE 250 index itself returns just 1.8%. Like Investec, REDD’s cash returns are protected twice by earnings. 

REDD stock recently hit a three-year high as a result of the company snapping up electric vehicle charging equipment supplier ChargedEV. This sounds like a prudent acquisition to me considering the growth expected in this area over the next decade or so as more customers transition away from internal combustion engines.

A P/E of 12 also looks great value as things stand. Then again, REDD doesn’t have the high returns on capital and chunky profit margins I usually look for as a way of lowering risk. So, I’d need to make an exception here. 

Synthomer

Speciality chemicals firm Synthomer (LSE: SYNT) is a final example of what I consider to be one of the best stocks to buy for rising income. 

Analysts believe that SYNT will return a total of 23.5p to owners in FY21. If this comes to pass, it would represent a doubling of 2020’s payout. Again, this cash return would be easily covered by profit. In fact, Synthomer’s dividend is the safest of those mentioned by this measure. 

I’d also be buying a stake in a company in rude health. Synthomer reported a threefold increase in EBITDA (to £322.7m) over the first six months of 2021. Importantly, this was also above that logged for (pre-Covid) H1 2019.

I think this makes the stock — at just below 8 times earnings — look a steal. Even so, I’d be careful not to assume that recent dividend hikes will be replicated. Moreover, no income stream in the world is ever guaranteed.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.