While many investors seeking to generate a second income focus on the FTSE 100, a number of FTSE 250 companies also offer impressive dividend outlooks.
They may not provide the size and scale of large-cap stocks, but they could deliver stronger profit growth that translates into a faster pace of dividend growth. With that in mind, here are two mid-cap stocks that appear to offer a potent mix of income returns as well as the potential for capital growth over the long run.
Energy services business Wood Group (LSE: WG) released an encouraging trading update on Wednesday, with its first half performance ahead of the previous year. Revenue has been in line with the comparable period, but margin improvement has led to rising profitability. Stronger margins have been recorded due to cost synergies, as well as stronger performance in energy-related activity in Asset Solutions.
With a dividend yield of over 6%, Wood Group appears to offer an impressive income return at present. However, its income prospects could improve as a result of a rising bottom line with its net profit forecast to rise 22% in the current year. Since dividends are covered twice by profit, there could be scope to raise them at a fast pace over the long run.
While the wider sector in which it operates could experience an uncertain period, Wood Group’s price-to-earnings growth (PEG) ratio of 0.7 suggests that it offers a wide margin of safety. As such, now could be a good time to buy it for the long term from an income and growth investing perspective.
Tritax Big Box
While the UK commercial property sector may be experiencing an uncertain period at present, logistics property specialist Tritax Big Box (LSE: BBOX) appears to be enjoying a tailwind. Demand for large distribution facilities is growing rapidly, and this is expected to remain the case over the medium term as e-commerce becomes an increasingly important part of the retail economy.
As such, the company’s financial prospects are bright. In the current year, it’s forecast to post a rise in earnings of 7%, which could help to improve investor sentiment.
With Tritax Big Box currently offering a dividend yield of 4.5%, it has an income return that equals the FTSE 100, and is 120 basis points higher than the FTSE 250.
Although the prospects for the UK economy may continue to be uncertain, the gradual shift of shoppers from bricks-&-mortar stores to online is forecast to continue. This could mean rising demand for large-scale distribution facilities continues over the medium term and leads to rising profitability, as well as a growing dividend, for the company.
Therefore, now could be a good time to buy it – even though the wider commercial property sector is experiencing a challenging period.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.