When I look for income shares, my first thought is to turn to the FTSE 100. But with the FTSE 250 hammered over the past 12 months, I see plenty of possibilities in the mid-cap index too.
We usually associated the FTSE 250 more with growth stocks, and it tends to suffer more painfully in market downturns. And it is down a fair bit more than the FTSE 100 in 2022. But these three shares are now on dividend yields of more than 7%.
Abrdn
Abrdn (LSE: ABDN) has been having a hard year. The investment firm’s shares have fallen 14% in 12 months. And that’s after a rebound since October — at one point, they were down 40%.
Forecasts put the dividend yield at 7.1%. At October’s low, the same dividend would have meant an 11% yield. And analysts expect it to hold up over the next couple of years, though that needs to be treated with caution.
So why are investors suddenly bullish? Part of it will be due to an upturn in the index itself, though Abrdn has outstripped it.
I think it’s just a welcome correction as the market realises the stock was undervalued. We’ve seen recoveries like this falter before, though, and I see that as the biggest risk. Are investors being too optimistic too soon?
Target
Property shares have suffered a tough year too. The Target Healthcare REIT (LSE: THRL) share price has slumped 32% in the past 12 months, mostly since September.
That’s despite what I thought were reasonable full-year results. Earnings fell short of analysts’ expectations, but revenue came in ahead. And in a difficult year like 2022, I’d be happy enough with that.
The fall has helped push the dividend yield up to 8.5%. Why might Target be a good choice in the real estate investment trust (REIT) sector? The trust specialises in care homes. And I see more safety there than in, for example, a retail-focused REIT.
Earnings forecasts remain modest, so there’s downside risk over the next couple of years. And the shares could remain depressed. But with that dividend yield, I reckon Target is worth a closer look.
Bellway
Finally I come to Bellway (LSE: BWY). In an income portfolio today, I’d have to include a housebuilder, as I see the whole sector as undervalued now. Bellway shares are down 39% in 12 months, though others in the sector have fared worse.
Right now we’re looking at a forecast dividend yield of 7.2%. Analysts do expect that to decline over the next couple of years, and I’m not surprised. Interest rates are high, house prices are weakening, and we’re in a recession.
So the risk seems clear. But I don’t see the UK’s chronic housing shortage ending any time soon. And I still see a strong long-term future for the housebuilding industry.
If history is anything to go by, the best time to buy housebuilder shares has been during their cyclical downturns.
