A lot of people might think that the top FTSE 100 shares are best for dividends, while shares in the lower indices are all set for growth. But that’s often far from the case, and I’ve uncovered three shares in the FTSE 250 which look to me like they’re offering tempting cash.
Profit from property
Whichever way property prices go, there’s plenty of profit to be had from the rental business — and what better way to tap into it than a Real Estate Investment Trust (REIT)?
The one I have in mind is Redefine International (LSE: RDI), which is forecast to produce dividend yields of 8% this year and next. That’s high, even for a REIT which is obliged to distribute most of its profits via dividends, so is it sustainable?
Redefine carries more debt than most, mainly because of last year’s acquisitions, and a falling share price suggests investors might be getting a bit twitchy. With the price now at 39p, we’re looking at a P/E for August 2017 of 11, though that would drop to 10.4 on 2018 forecasts.
Interest rate rises could force Redefine to cut its dividend, and the forecast 3p per share for this year is lower than last year’s. But even if it is cut, I still see a long-term sustainable yield of possibly around 6%. And especially at today’s low P/E valuation, I see that as a tasty long-term prospect.
Shares in beleaguered TalkTalk Telecom (LSE: TALK) have been on a slide of late, tumbling as low as 166p today from more than £4 back in July 2015. Disappointing trading that year was compounded by that embarrassing data hacking episode in October.
That’s brought the shares’ valuation down from silly P/E levels of above 40 to a more tempting 13 based on March 2017 expectations — and forecasts drop that as low as 10.6 by 2019.
The dividend is set to yield as much as 9% this year, dropping to around 7.5% next. That would only just be covered and must be seen as risky, but the company kept the annual payment going throughout its earnings slump, and there have been changes of late that suggest a good long-term future.
A senior debt issue in January was “multiple times over-subscribed,” a Q3 update sounded positive, and chairman Charles Dunstone will move to an executive position after CEO Dido Harding steps down in May.
Where there’s cash
Those little yellow PayPoint (LSE: PAY) terminals are used 15m times per year, sending the company to the forefront of the UK’s payment business and helping establish a healthy barrier to entry.
The share price has been erratic over the last few years, despite steady growth in earnings. Today, at 990p, we’re looking at a forecast dividend yield of 4.5% for the year to March 2017, rising to 5.2% by 2019. That’s not a massive yield, but it follows a progressive path — the City is expecting rises of around 7% per year, and the 45.3p predicted for this year would be 71% higher than 2012’s 4.4%.
Paypoint sold its mobile payments business in the current year to focus on its retail business, and December’s Q3 update reported nice progress. Retail net revenue grew by 6.7% after retail transaction volumes increased by 11.8%, and the company ended the quarter with £92.5m in net cash (from £49.6m in September).
That all adds up to what I see as a progressive cash cow.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.