It’s easy to focus on FTSE 100 shares, with so many on low valuations right now. But I think ignoring FTSE 250 stocks could be a big mistake.
The mid-cap index can be more volatile, and can bring more short-term risk. And since a peak in mid-2021, it’s lost 25% of its value.
But this century, the FTSE 250 is up a huge 190%. The FTSE 100 has managed a poor 7% (though with bigger dividends).
It might be that FTSE 250 stocks had become undervalued. And what we’ve seen in the 21st century is just a correction.
If so, this period of outperformance might be over.
But a stock market index is really nothing more than the sum of its parts. And when I look at it closely, I think I’m seeing some tasty parts.
We might see the FTSE 100 as the best for income investors. But there are some equally big dividends on the FTSE 250.
The beaten-down housebuilding sector looks cheap to me. We see Crest Nicholson Holdings on a forecast dividend yield of 9%. That looks set to fall next year. But it’s higher than FTSE 100 builder Taylor Wimpey.
Investment manager abrdn offers a big 8.5% dividend, which also looks good to me. And I’m only picking a couple I think have long-term strength. There are plenty more big yields.
The overall FTSE 250 dividend yield is up to 3.6% now, not far from the FTSE 100’s 3.9%. And that’s with the smaller index more closely noted for growth rather than income.
What about growth?
Traditionally, folks have seen the FTSE 100 as the index to pick for dividend income. And growth seekers should turn to FTSE 250 stocks instead.
I’ve always thought that was nonsense.
I mean, yes, growth stocks tend to be smaller firms. But an arbitrary line between indexes doesn’t make any sense to me.
It certainly doesn’t separate the good from the bad in dividend stocks, as we can see.
Index vs stocks
An old saying about not seeing the wood for the trees springs to mind. But a huge forest can have strong or rotten trees in it, just like a small thicket.
And FTSE 250 stocks can be just as good or bad as FTSE 100 ones, no matter how many are in each index, or how big they are.
So, I ignore the index, and look at individual stocks. It’s the only approach that makes any sense to me.
I see lots of stocks I’d like to buy in the FTSE 250. But it’s nothing to do with the index. It’s just that, individually, I rate them as great companies at nice prices.
So would I put £10,000 into FTSE 250 stocks today?
I don’t have that much in my pocket right now. But yes, if I like the look of any company, I’d go for it. In fact, I have quite a few on my watch list that happen to be in the FTSE 250.