The current average dividend yield of the FTSE 250 is 3.37%. Within the index, some members have a higher yield. By taking into account the divided forecast for the coming years, an investor can try to find some good income stocks. However, any yield inflated by a falling share price needs to be treated with caution.
The key points
I’ve come across Workspace Group (LSE:WKP), a FTSE 250 stock. The real estate investment trust (REIT) is focused on commercial property for small and medium-sized enterprises, mainly in Greater London.
The stock is down 40% over the past year with a dividend yield of 7.31%. Part of the reason for the share price fall comes from a decline in occupancy. Back in June, it reported that occupancy slid from 88% to 83% year on year. Many tenants are downsizing or uncertain, often driven by hybrid working models.
Further, with interest rates remaining higher than expected, it has put pressure on property valuations. The higher cost of borrowing makes it harder for potential buyers to support the market, acting to reduce the value of the properties in the portfolio of Workspace.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Income potential is still strong
The REIT typically pays two dividends a year. Over the past year, this has been 9.40p and 19p, totalling 28.4p. When using the current share price of 388p, we derive the yield of 7.31%.
It’s important to note that despite the business struggles, the dividend cover is 1.2. This means the current earnings per share fully cover the dividend payments, with an excess when the number is above one. Therefore, I don’t see any immediate pressure of it being cut.
Looking forward, analysts expect the dividend to rise for a total in 2026 of 29.15p, with 29.60p in 2027. In theory, if the share price remained the same, this could translate to a yield of 7.62%. This would be over double the current index yield for the FTSE 250.
Of course, these expectations are subjective. A lot can change in the coming couple of years that could either decrease or increase the dividend per share.
Cautiously optimistic
If the dividend is stable, the main risk going forward is a further share price fall. This could wipe out the benfits of the income, and could be seen if commercial property continues in its rut. However, I have a slightly contrarian view that more companies will be pushing for people to come back to an office, even smaller businesses. If the UK continues to have unemployment rising, those who have a job will be keener to show their face and prove their worth.
As a result, I think the company could have weathered the worst of the storm here. Don’t get me wrong, this is a high-risk stock for consideration. It’s not suitable for everyone. But I’m seriosuly thinking about allocating a small amount of money to the stock for the income benefits.
