The FTSE 250 contains a wide spread of different businesses. When investing, some people look to target companies that offer a generous dividend. Based on a lump sum of £3,000, here’s how the money could be used to achieve an overall yield of 7.6%.
Sustainable investing
In theory, someone could put all of the money in Primary Health Properties. The FTSE 250 company has a yield of 7.63%. However, it’s not particularly diversified. If the business decides to cut the dividend, the yield could fall overnight.
Instead, I think it’s better to buy a handful of companies, to then average out the yield. That way, if something bad happens to one firm, the overall impact is much smaller.
Another point to note is the mix of stocks that can be targeted. There aren’t a dozen stocks with a yield of 7.6%. Instead, it can be made up of some solid, reliable divdiend payers such as Man Group. The yield of 4.81% is below the target, but it can be offset by including some higher-yield plays, such as Greencoat UK Wind, which boasts a yield of 10.49%.
Finally, it makes sense to distribute the £3k between different sectors. At the moment, renewable energy and financial services contain plenty of stocks with high yields. Yet if someone is too exposed to one area, it could spell problems even if they are holding multiple stocks.
Digging deeper
One example that could be included in the portfolio is HICL Infrastructure (LSE:HICL). The trust invests in core infrastructure assets, things like hospitals, roads, and schools. It essentially buys stakes in these projects and collects long-term cash flows in return. These contracts can span multiple decades, with a significant share from the government. There’s also built-in inflation linkage and relatively low volatility, which is exactly what income investors care about.
At the moment, the dividend yield is 6.44%, with the share price up 9% in the past year. Looking ahead, I’d say the outlook is positive. Infrastructure is in long-term demand globally. There’s a need for a huge amount of building related to trends like energy transition and digital networks. This could support long-term earnings and continued dividends for HICL.
On their website, HICL states that it targets a “sustainable dividend… fully cash covered and supported by long-term portfolio earnings“. The fact that the business has a clear focus on income payments makes it appealing. Of course, there are risks. Political and regulatory risks, especially in public-private partnerships, can negatively impact earnings. Further, if earnings don’t keep pace with distributions, the dividend could eventually come under pressure.
Even with these points, I think it’s a stock that could be considered as part of a FTSE 250 income strategy.
