When you think dividend stocks, do you automatically think FTSE 100? Well, there are some big dividend yields in the FTSE 250 too, though some of them might come with a little more risk. Here are three that look like tempting New Year buys.
My first is a pretty safe choice, I think. It’s the City of London Investment Trust (LSE: CTY), and its dividend yield is not huge at around 4.5%. But what makes it stand out is that the dividend has been raised every year for 53 years in a row, beating all other investment trusts.
The trust’s target is to outperform the total return of the FTSE All-Share index through a combination of capital growth and income, and it’s been outperforming that benchmark quite nicely. With its track record, very low charges, investment mainly in blue-chips, and with the same manager, Job Curtis, at the helm since 1991, I see City of London as a solid long-term investment.
One possible downside is that it runs at a 12% gearing, and I’m not over-enthusiastic about debt, although that is low. And the shares are trading at a premium to net asset value of about 2.5% when most trusts are on a discount. But those are picky objections.
If you fancy a bit of contrarian risk-taking, you might like the look of Petrofac (LSE: PFC), which provides oil field services.
What we’re looking at is a predicted yield of 7.8%, and though earnings look set to decline, it should be well covered.
The oil price crisis hit Petrofac hard, and with prices still a bit low, it’s not getting the level of business it really wants, but I think it could be a good long-term investment for patient investors as I expect oil to firm up in the next few years.
The big risk with Petrofac is that it’s facing a Serious Fraud Office (SFO) investigation into Middle East bribery allegations, and we don’t know how long that will last or what the final cost might be.
But that uncertainty has led investors to dump the shares and push the price down 60% since February 2017, and that’s resulted in a forward P/E of only 6.1. That’s why I see it as a contrarian risk-taker’s stock, but I think it has the potential to double (and keep paying dividends).
Bricks and mortar
My third pick is also perhaps contrarian, in NewRiver REIT (LSE: NRR), a real estate investment trust.
NewRiver invests in retail properties, and that’s put it firmly out of favour with those who have been fearing a Brexit-led property collapse and further carnage on the high street. As a result of heavy selling, the share price is down 36% over the past two years — but it has been enjoying a bit of a bull run since August, so it might have turned the corner.
With the price down so heavily, while the dividend is expected to be held flat, yields have climbed to a predicted 10.5%.
While its property valuations have declined this year, NewRiver’s underlying operational cash flow has remained healthy, which makes me optimistic. I think we could see further share price strengthening in 2020, with a resumption of dividend rises not too far into the future.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.