These FTSE 250 dividend shares both offer decent dividend yields. But which should I buy next month if I have spare cash to invest?
Marks & Spencer Group
The Marks and Spencer Group (LSE:MKS) share price has rocketed since the autumn. It’s a rise that reflects the success of the firm’s revamped clothing strategy that pushed clothes and homeware sales (on a like-for-like basis) 8.6% higher between October and December.
The retailer finally seems to have got its act together after years of underperformance. But I fear its resurgence could be short lived as competition across the business heats up.
The mid-tier clothing market is heavily congested. And Marks and Spencer faces a massive scrap with Next, ASOS, Zara and many more to win customers, a problem that is also heaping huge pressure on its margins.
The company’s food business is also threatened by increasing competition, and especially from the discount retailers. Research from The Grocer shows that 27% of Aldi and Lidl’s new stores were built in areas of “above-average” affluence in 2022.
M&S hasn’t paid a dividend since the depths of the pandemic. But City analysts expect the retailer to have resurrected its payout policy for the past financial year (to March 2023).
And they expect dividends to rise strongly over the short term. This means dividend yields stand at a healthy 3.3% and 3.9% for this year and next respectively.
Both readings beat the forward 3.2% average for FTSE 250 shares. Yet as consumers feel the pinch and competitive pressures worsen, I think these dividend forecasts could well disappoint. On balance I’d happily leave M&S shares on the shelf.
Grainger
Elevated construction costs remain a problem for residential landlord Grainger (LSE:GRI). Product supply issues, high energy costs and labour shortages are all taking a bite out of the company’s bottom line.
Yet on balance the FTSE 250 stock remains a top pick in my book. Strong and sustained rental growth looks appears here to stay as the country’s property shortfall worsens. Weak housebuilding rates and a steady fall in buy-to-let landlords mean tenant costs look set to keep rising.
Average monthly rents inside and outside London hit record peaks of £1,190 and £2,501 in the first quarter. That’s according to property listings business Zoopla. Rents outside the capital have risen for 13 quarters in a row.
And Grainger — which has 10,000 homes in its portfolio, making it Britain’s largest-listed residential landlord — is reaping the fruits of this market imbalance. Like-for-like rental growth accelerated to 6.1% between October and January. This was up from 5.5% in the preceding six months.
It’s no surprise then that the firm is ramping up home construction at the moment. In the current financial year to September 2023 it plans to build 1,640 built-to-rent properties, an all-time high if achieved.
Against this favourable backdrop, City analysts expect dividends at Grainger to continue rising rapidly. So this year’s dividend yield of 2.4% marches to a healthy 2.9% for financial 2024. On balance I think the business could be a great source of passive income.
