While buy-to-let investing has generated high income returns over recent decades, increased taxes and onerous regulations mean FTSE 250 dividend stocks could offer superior risk/reward ratios.
In fact, it’s possible to generate a robust dividend yield from a number of stocks right now, with the potential to benefit from rising dividends in the long run.
With that in mind, here are two mid-cap shares which could offer superior income returns than buy-to-let investing over the long run.
High performance polymer solution specialist Victrex (LSE: VCT) released its first-half results on Monday. They showed its performance has been relatively weak, with challenges in its Automotive segment and continued headwinds in Consumer Electronics weighing on its performance. As a result, sales volumes moved 16% lower, although there has been an improving trend in the second quarter of the year.
Although the company’s dividend yield stands at around 2.8%, this excludes its special dividends. It will seek to pay these when it’s able to, given investment requirements, it said. Although special dividends are therefore not guaranteed, there’s the potential for its income return to be significantly higher than many of its FTSE 250 index peers.
Since Victrex trades on a price-to-earnings (P/E) ratio of around 16, it seems to offer fair value for money. With the prospect of dividends moving higher at the same rate as its bottom line, the company could offer an improving income investing outlook over the long run.
The company has structural growth opportunities and a healthy new product pipeline which could act as catalysts on its financial performance. As such, it could offer a superior income return compared to other assets such as buy-to-let property.
Tritax Big Box
Although the prospects for UK commercial property are uncertain at present, logistics facility specialist Tritax Big Box (LSE: BBOX) could have an improving financial outlook. The company is expected to post a rise in earnings of 7% in the current year, with demand for its warehouses proving to be high.
One reason for this is the transition of the retail sector towards online, as consumers are becoming increasingly comfortable in using their mobile phones to buy a variety of goods for home delivery. This is causing demand for large-scale warehouses to remain high, and means the company could enjoy a significant tailwind over the long run.
With Tritax Big Box having a dividend yield of 4.8%, it appears to offer an impressive income outlook. Although Brexit may have an impact on its shares in the short run, in the long-term changing trends within the retail industry look set to continue. Therefore, now could be a good time to buy a slice of the stock, with its income growth potential likely to be higher than that of buy-to-let given the tax changes that are ongoing within the industry.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT and Victrex. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.