The FTSE 250 index contains medium-sized companies, some of which may in future grow large enough to join the flagship FTSE 100.
But the smaller sister index is not just about growth shares. It has some strong income options too.
Here are two high-yield FTSE 250 shares I would happily buy for my ISA today if I had spare cash to invest – and one I am avoiding.
ITV
The broadcaster and production facilities provider ITV (LSE: ITV) may be a household name, but its shares sell for pennies. I already own this share but, as the price continues to sink lower, I would be happy to buy more. ITV shares today sell for 42% of their price five years ago.
Part of the fall can be attributed to City concerns about the impact on profits of tightening advertising budgets. The rise of digital channels is another ongoing risk as it pulls viewers away from ITV and so the business needs to invest more in its own digital content to keep up.
It has been growing its digital footprint. I think the production business is a hidden gem and ITV’s market capitalisation of £2.3bn does not reflect the long-term potential of a business that generated £435m in profits after tax last year.
With an 8.8% dividend yield, the income prospects here continue to attract me.
Redde Northgate
Commercial vehicle rental and motor specialist Redde Northgate (LSE: REDD) is also on my radar.
Last year saw record revenues and post-tax profits, of £1.5bn and £135m, respectively. After a cut in 2020 the dividend has been growing strongly and the yield is currently 7%.
The shares trade on a price-to-earnings ratio of 6, which I think is good value.
At its half-year mark last October, the company unveiled a 4.4% fall in earnings per share. But it also raised expectations at that point, saying that it expected full-year earnings to be slightly ahead of market consensus estimates.
A concern here is the company’s net debt. At the end of October it stood at £755m. That is almost equivalent to the firm’s current market capitalisation of £783m.
But I like its position in an industry for which I expect to see ongoing strong demand.
Diversified Energy
The highest-yielding FTSE 250 share (indeed, I believe the highest-yielding share on the London market overall) is Diversified Energy (LSE: DEC). The US-focused gas producer yields a mammoth 27.8%.
When I see that sort of yield, alarm bells start ringing in my head about its sustainability.
Diversified pays dividends quarterly. It has been raising its dividend annually in recent years, though in its most recently quarterly report a year since the last raise, it held the payout flat.
That still makes for a huge yield. But past performance is not necessarily indicative of what will happen in future. Diversified faces risks such as the clean-up costs of its tens of thousands of ageing wells and energy prices falling.
Although outstanding debt at the end of last year was 15% lower than a year previously, the company’s large debt pile remains a key risk in my view.
The risk profile at this FTSE 250 energy company does not match what I am looking for as an investor, so I will not be investing.
