2 FTSE 250 stocks I’d buy for massive passive income

The stock market can be a great source of passive income. Our writer picks out two FTSE 250 (INDEXFTSE:MCX) stocks he’d buy for their dividends.

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The globally-focused FTSE 100 is often seen as the best place to go hunting for dividends. However, I think the more UK-focused FTSE 250 offers just as many great opportunities.

Here are two mid-tier stocks I’d be willing to buy if I were looking to build a portfolio with the primary goal of generating passive income.

Opportunity knocks

As a group, housebuilders had a torrid 2022. That’s not surprising when I consider the headwinds faced by the sector. Higher mortgage rates? Check. Cost-of-living crisis? Check. Throw in a post-Covid surge in valuations and that bubble always looked ready to pop.

Even so, I think share prices are now looking very attractive across the board. This is particularly so given recent speculation that interest rates may have peaked.

Vistry (LSE: VTY) is one option, especially when its income credentials are factored in.

Formerly known as Bovis Homes, the £2.7bn cap business changed its name when it acquired Linden Homes and Galliford Try Partnerships back in 2020. Countryside Partnerships was then snapped up for £1.27bn last year.

Patience required

Sure, demand could be hit for a while. Even those who are ready to buy could be holding back in the hope the prices will continue to soften. And who’s to say they’re wrong to do so?

Then again, I think Vistry will be just fine. It’s got a healthy cash pile that can be used to add to its landbank. Indeed, Countryside recently announced the purchase of a 170-acre site in Warrington. This will now be developed into 1,200 home in a joint venture with affordable housing provider Torus.

As challenging as the market might be, the company also announced in January that profits were
in line with expectations” and ahead of where they were at the start of 2022.

Oh, and let’s not forget those juicy bi-annual cash returns. As I type, Vistry’s forecast dividend yield comes in at 5.8%, covered almost twice by profit. That’s double the 2.9% offered by the FTSE 250 index as a whole.

An ‘alternative’ investment

Clearly, the need to spread my money around is still paramount. That’s why the second mid-cap I’m highlighting today is a world away from the UK property market.

Hipgnosis Songs (LSE: SONG) is an oddball investment opportunity but one that has considerable appeal. The company invests in a portfolio of song catalogues by artists around the world with the aim of generating income through “millions of microtransactions such as streaming, physical purchase, downloading, synchronisation, performance, licensing and merchandising”.

The list of artists that have sold their rights is stellar and growing. Big names include the Red Hot Chili Peppers, Mark Ronson and Shakira. The most recent addition is Justin Bieber, via a partnership between subsidiary Hipgnosis Song Management and Blackstone.

Another monster yield

Clearly, one drawback here is that building a portfolio doesn’t come cheap. The aforementioned deal with Bieber, for example, cost $200m. So, there’s always a concern that Hipgnosis might be overpaying for assets whose popularity might come, go and never return.

Still, I reckon the dividend yield of 6.2% is worth grabbing. One can also argue (and Hipgnosis does) that its business model means it’s not correlated with global markets in general.

This all sounds pretty attractive to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers 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.

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