Since June 2022, my wife and I have been on an extended share-buying spree. During this latest investment phase, we bought seven new US stocks, 15 FTSE 100 shares, and five FTSE 250 holdings.
While our new US stocks were bought for long-term growth, most of our FTSE 350 shares we bought to provide us with a healthy dividend income in the years ahead. However, for now at least, we have decided to reinvest this cash into buying yet more cheap shares.
Three undervalued FTSE 250 shares
For example, here are three mid-cap companies that we bought into for their attractive divided yields. To put these market-beating cash yields into context, the FTSE 100 currently offers a dividend yield of 4.1% a year. The following table is sorted from highest to lowest dividend yield:
|Stock||Current price||Market value||Dividend yield||One-year change*||Five-year change*|
|Close Brothers Group||809.4p||£1.2bn||8.2%||-21.7%||-49.3%|
One of these companies — broadcaster and media producer ITV (LSE: ITV)– will be well-known to UK investors. My wife bought ITV shares in late 2022, so we have owned this stake for over a year. Excluding dividends, we have made a tiny return of 0.9% to date on this investment. But I have high hopes for this undervalued media business.
Close Brothers Group (LSE: CBG) is a merchant-banking firm providing securities trading, lending, deposit-taking, and wealth-management services. The firm is divided into five segments: Commercial, Retail, Property, Asset Management, and Securities. The business — founded in 1878 — employs around 3,500 people.
Close Brothers shares have had a tough time, losing more than a fifth of their value over one year and almost halving in the past half-decade. But these price falls have pushed up its dividend yield to a mouth-watering level, so we bought this stock earlier this month. To date, we have made a paper loss of 2.9%, but it’s very early days.
Investment manager Man Group (LSE: EMG) is the world’s largest listed hedge-fund firm, with origins dating back to 1783. Today, the group uses highly sophisticated algorithms and systematic-trading strategies to play financial markets globally for its many clients. At the end of 2022, it managed assets worth $143.3bn for both private and institutional investors.
Though Man shares are down around a sixth over 12 months, they have risen by almost a fifth over five years. Over the same period, the FTSE 100 has lost 1.3% of its value. In the long term, I expect Man to keep beating the wider UK stock market.
Passive income of 7.1% a year
Across all three FTSE 250 shares, the average dividend yield comes to 7.1% a year. Although this is well ahead of the interest rates offered by top savings accounts, dividends are not 100% secure. Indeed, future dividends can be cut or cancelled without notice — as happened repeatedly in the Covid-19 crisis of 2020/21.
Also, these companies are exposed to the twists and turns of the UK economy, including rising interest rates and high inflation. Nevertheless, I see all three as winners in the long run — and that’s why I’m happy to hold these FTSE 250 stocks for years to come!