Dividends from UK shares are bouncing back following the chaos caused by the Covid-19 outbreak. There’s still some way to go before most UK shares return dividends to their pre-pandemic levels.
The average forward yield on the FTSE 250 today illustrates this perfectly. The prospective average right now sits around 1.8%. This lags the historical average by almost a full percentage point.
However, it’s still possible for dividend investors like me to find top income stocks to buy on the index. Here are what I think are two of the best FTSE 250 dividend stocks to buy right now.
7.8% dividend yields
Direct Line Insurance Group (LSE: DLG) is top of my FTSE 250 shopping list because of its mighty value. Firstly, it carries a monster 7.8% dividend yield for 2021. Secondly, it trades on an undemanding forward price-to-earnings (P/E) ratio of 12 times. I think this is a snip given the dividend stock’s industry-leading position in the general insurance markets.
Companies with strong earnings visibility are critical for those seeking big dividends year after year. This is a quality that makes Direct Line such a popular stock to buy for income chasers as spending on insurance remains stable during economic upturns and downturns. This is especially the case in the motor segment of course, where insurance cover is a legal requirement.
The FTSE 250 operator faces severe competition in all its markets, sure. But at current prices — and particularly with that huge dividend yield — I think Direct Line is too cheap to miss.
An electrifying dividend stock
ContourGlobal (LSE: GLO) is another top FTSE 250 dividend stock I’d buy today. The company, which builds and operates power stations across the globe, plans to grow dividends by 10% each year. I’m confident that the essential nature of its services and its improving cash generation will see it make good on its pledge.
Electricity demand across the world is set to keep rising strongly. Naturally, more and more power plants will be needed to service growing consumption. However this isn’t the only reason I like ContourGlobal shares.
The company has also made renewable energy a core part of its growth strategy, a savvy play as lawmakers take steps to reduce their carbon footprints. The International Energy Agency reckons green energy sources will surpass coal as the primary means of producing electricity as soon as 2025.
ContourGlobal’s share price has sunk in recent weeks. This is in spite of some terrific half-year financials released at the start of August. In my view this represents a great dip-buying opportunity as, at current prices, the business trades on a forward price-to-earnings (PEG) ratio of 0.1.
Oh, and right now the dividend stock packs a hefty 6.6% yield too. I think this is a top dividend share to buy even though its complex operations create a large range of execution risks which can impact profits.
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Royston Wild 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.