The FTSE 250 is a treasure trove for income investors. It boasts a significantly bigger number of high-yielding dividend stocks compared to its larger sibling. Case in point: 14 of its listings have a yield above 8%, as opposed to only four on the FTSE 100.
But while high dividend yields might be tempting, I prefer to focus on those with sustainable payouts that have growth potential.
These are my top three picks.
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Primary Health Properties
Primary Health Properties (LSE: PHP) is probably the most reliable dividend-paying stock in my portfolio. As a real estate investment trust (REIT) it’s required to pay 90% of its profits back to investors as dividends.
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For the past two decades, dividends have increased in all but two years. Currently, its yield is 7% and it paid out 6.7p per share last year. This year it’s expected to increase to 6.9p.
However, high inflation and a struggling housing market haven’t been kind to the REIT. Recent results revealed a sharp drop in earnings, leaving the trust unprofitable. The share price has slid 30% over the past five years.
With earnings per share (EPS) forecast to recover this year, things may improve. But the loss does threaten dividends, which is something I’m keeping a close eye on.
Could the new Labour government help turn its fortunes around? I hope so — in the meantime, I’ll keep enjoying those dividend payments.
ITV
ITV (LSE:ITV) also boasts a decent yield, at 6.3%, but has been less reliable than Primary Health.
The company has struggled over the past five years, with the share price down 30%. Subsequently, dividends have been cut or reduced 10 times in the past two decades.
Changing consumer habits and a highly competitive streaming industry have tested it. But with the firm being behind some of the most popular TV shows in the UK, its Studios arm has revived its fortunes recently. With a growing audience, the shares have grown 26.5% this year.
Now trading at 70% below fair value with a price-to-earnings (P/E) ratio of 7.2, its prospects seem good. Unfortunately, industry-specific risks threaten its chances. With limited growth forecast in the broadcasting industry, analysts expect a 28% decline in ITV’s earnings over the coming year.
Can a new season of Love Island reignite its fortunes? I can’t say for sure. But for now, the dividends are delivering me decent returns.
TPICAP
TPICAP (LSE: TCAP) is a London-based firm offering global financial intermediary services.
It has the lowest yield on my list at 6.1% and payments have been continuous but up and down. The pandemic forced a 50% cut but it’s recovered most of that since. However, a high level of debt combined with declining cash flows threaten future payments.
Fortunately, the shakey dividend outlook is made up for in price growth. The share price is up 52% in the past 12 months. Following a tough couple of years post-Covid, it bottomed out at £1.05 and has since recovered 130% to £2.40.
With earnings expected to increase 67% in the coming year, its forward P/E ratio is 10.7 — below the UK Capital Markets industry average of 13. In its H1 results released earlier this month, net income jumped 38% and EPS rose from 8.4p to 12p.
If it can maintain that strong performance, then it should be able to pay higher dividends.
