While stock markets worldwide have plunged in 2022, the UK’s FTSE 100 index has been a safe port in this storm. Since 31 December 2021, the Footsie has risen by 1.8%. Unfortunately, the FTSE 250 index has fared much worse this year.
The FTSE 250 had a tough 2022
On 31 December 2021, the FTSE 250 closed at 23,480.81 points. As I write on Wednesday afternoon, it stands at 18,890.72, having lost close to 4,600 points in 2022. That’s a slump of almost a fifth (-19.5%), making this one of the mid-cap index’s worst years since the global financial crisis of 2007-09.
But as a value investor who buys on fundamentals, falling share prices throw up opportunities for me to buy into established businesses at reasonable valuations. Hence, I’ve dipped into the FTSE 250 repeatedly this year to buy cheap shares to own for many years. Here are three mid-cap stocks my wife bought for our family portfolio earlier this year.
Three cheap mid-cap dividend shares
During the summer lull in share prices, we bought into these three FTSE 250 businesses:
| Company | Direct Line Group | ITV | International Distributions Services |
| Sector | Insurance | Media | Postal services |
| Current share price | 221.69p | 74.1p | 211.9p |
| 52-week high | 313.7p | 124p | 531.4p |
| 52-week low | 171.7p | 53.97p | 173.65p |
| 12-month change | -21.0% | -33.5% | -59.4% |
| Market value | £2.9bn | £3.0bn | £2.0bn |
| Price-to-earnings ratio | 11.0 | 6.3 | 8.3 |
| Earnings yield | 9.1% | 15.8% | 12.1% |
| Dividend yield | 10.2% | 6.7% | 7.9% |
| Dividend cover | 0.9 | 2.3 | 1.5 |
Although all three companies are FTSE 250 firms, they are very different businesses. Direct Line is a leading provider of UK household and car insurance. ITV is Britain’s largest commercial terrestrial broadcaster and a leading producer of media content. And IDS (formerly Royal Mail Group) provides our universal postal service.
We bought Direct Line shares at roughly £2 a share and have made a double-digit paper profit on this buy to date. Though Direct Line’s bumper dividend yield is no longer covered by earnings, the company intends to maintain this chunky payout in 2023. So I’m perfectly happy to stick with this dividend stock for now.
The story is much the same at ITV, whose shares we bought at around 68.4p in late June. Again, these have produced an early paper profit, but we bought this stock for its long-term dividend potential. And the good news is that ITV’s near-7% cash payout is covered 2.3 times for earnings, which to me suggests that it is rock-solid.
Finally, we come to International Distributions Services, which is my worst FTSE 250 buy of 2022. Having bought into this postal provider/delivery service at 273.2p, we have lost almost a quarter (-22.4%) of our investment to date. What’s more, with ongoing strikes costing IDS millions of pounds a week, its dividend is under threat. Even so, we plan to hold onto our shares for their recovery potential in 2023 and beyond.
I love delicious dividends
Over the past six months, we’ve bought a total of 11 new dividend-paying UK stocks for our family portfolio. And with these new cash dividends now rolling in, we will keep buying cheap shares while stocks last!
