Although I spend a large amount of my time looking at stocks in the FTSE 100, I spend some time looking at FTSE 250 companies as well. After all, there are still good opportunities with companies that have a smaller market capitalisation than the main index. On that note, here are two FTSE 250 dividend stocks with attractive yields above average that I’m mulling for my portfolio.
A company for both income and capital growth
The first FTSE 250 dividend stock that I like at the moment if IG Group (LSE:IGG). I recently wrote about the business as a potential growth stock. Yet if I’m specifically looking for income, the company also ticks the box. Currently, the dividend yield sits at 5.04%.
IG Group offers a trading platform and other investment products to predominately retail investors. The largest area of revenue comes from spread betting. This form of trading allows me to wager money on the direction of different currencies, stocks and various other assets.
The outlook for the company looks strong, building on the impressive full-year 2020 results. It delivered revenue of £853.4m with profit before tax of £450.3m. This large profit margin is another reason I think the company could do well going forward.
One risk I need to note is that this FTSE 250 dividend stock has clearly benefited from the rise of retail trading since the start of the pandemic. If this slows down, or retail trading regulations tighten up, it could negatively impact IG revenues.
Another FTSE 250 dividend stock
A second company I like the look of is Plus500 (LSE:PLUS). It’s similar to IG Group, in that it offers trading and investing services to a retail investor base. A key difference is that Plus500 doesn’t offer spread betting, but rather CFD trading. CFD stands for contract-for-difference, and offers a similar style of leveraged trading. However, spread betting is classified as gambling (and so not taxed), whereas CFD trading profits are taxed.
Besides this, I like the business model of this FTSE 250 dividend stock for similar reasons to IG Group. The company is growing at a strong pace thanks to heightened interest in trading from retail investors. For example, in H1 2020 the business added 328,409 new clients. In recent H1 2021 results, this number came in at in 333,940. If this continues, then I think the company will fire on all cylinders.
The current dividend yield is 5.73%. Income should continue to be paid out to shareholders due to the strong profit margins and cash flow. However, one potential risk here is that income may be cut due to acquisitions.
For example, Plus500 recently bought Cunningham Commodities and CTS to bolster product and technology offerings. This is positive for growth, but I just need to watch out that future large purchases are covered by constant cash generation going forward.
Overall, I think that these two FTSE 250 dividend stocks offer me good income options due to strong business models. I’m considering buying both at the moment.
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joanthansmith1 and The Motley Fool UK have 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.