When buying British shares I do not just look at the flagship FTSE 100 index of leading companies. I also consider companies in its sibling FTSE 250 index, which contains firms with smaller market capitalisations.
If I had spare cash to invest now, here are two FTSE 250 shares I would be happy to buy and hold. Both have juicy dividends and currently yield over 5%.
City of London Investment Trust
The first of the pair is an investment trust.
That means it is a pooled investment fund. It puts money to work by buying into dozens of different companies. So shareholders can benefit from diversification and also professional management by buying its shares.
The City of London Investment Trust (LSE: CTY) invests in a range of blue-chip companies. Its five biggest holdings at the moment are FTSE 100 stalwarts BAE Systems, RELX, HSBC, Unilever, and British American Tobacco.
With a track record of annual dividend raises spanning more than half a century, the FTSE 250 share qualifies as a Dividend Aristocrat. The yield is a smidgen above 5% right now.
Dividends are never guaranteed, though. City of London’s large exposure to blue-chip British companies does pose a risk that, if the UK economy underperforms, the trust’s net asset value could be hurt. That might drag down its share price. It has barely moved in five years, edging up just 1% over that period.
From an income perspective, though, I would be happy to tuck the share into my portfolio.
ITV
One FTSE 250 share that I already have in that portfolio is ITV (LSE: ITV).
The well-known broadcaster and production house has a dividend yield of 8.3% and its shares sell for pennies.
They have fallen 55% in five years. That sort of share price fall combined with a high yield can signal investor nervousness about a company’s prospects. What about ITV?
On the downside, a weak advertising market is a risk to profitability. Ever-growing digital competition also threatens to cut ITV’s audience — and revenues.
But the business remains hugely profitable and made an adjusted pre-tax profit of £118m in the first half of its current financial year. That was a sharp fall from the prior year period, partly reflecting the heavy expenditure the company has been incurring to ramp up its streaming business. I expect that to pay rewards in future.
With ongoing demand for its production services as well as its own broadcasting operation, I expect ITV to generate sizeable profits in years to come. That could help the FTSE 250 firm achieve its stated aim of “sustaining a regular ordinary dividend which can grow over the medium term”.
If that happens, the current yield of 8.3% may actually be smaller than the prospective yield in years ahead.
