If I were forced to pick a handful of FTSE 250 stocks to hold for income over the next few years, beverage maker Britvic (LSE: BVIC) would likely make the cut. That’s not to say the Hemel Hempstead-based£2bn cap is immune to setbacks or devoid of risk. Today’s trading update is evidence of that.
FTSE 250 dividend stock
As one might expect, coronavirus-related restrictions in the run-up to Christmas, coupled with the third UK lockdown soon after, heaped more pressure on the hospitality sector. Understandably, this has impacted Britvic — the owner of soft drink brands such as Robinsons, J20 and R Whites.
Total revenue for Q1 of its financial year was a touch over £328m. On a reported basis, that’s a fall of 9.8%. In its GB market, total revenue fell 4.1% thanks to a huge 32% tumble in ‘out-of-home’ sales. Overseas revenue fell more than 19%, although sales in Brazil were a bright spot, rising almost 26%.
Naturally, the outlook for this FTSE 250 member’s profits is as cloudy as it is for most businesses. Today, Britvic said that it expects restrictions to stay during Q2 and that performance would continue to be “significantly affected“.
Not that CEO Simon Litherland seems too concerned. Commenting today, he said that Britvic is confident that it will “continue to successfully navigate the pandemic, emerge stronger, and be at the forefront of the recovery when it comes”.
Time will tell. In the meantime, analysts have Britvic returning 26.3p per share to shareholders in FY21. Taking today’s 4% tumble in the share price into account, that equates to a forecast yield of 3.6%. For an established company in the resilient beverage sector, that really helps to mitigate the risk, in my opinion.
What’s more, Britvic’s shares still look reasonably priced at 15 times earnings before markets opened. Although capital gains are not the point for me when I’m looking to generate income, I think we could see the stock fizz when pubs, bars and cafes are allowed to reopen.
Chunky cash returns
Another FTSE 250 stock offering a great source of dividends, in my opinion, is online trading platform IG Group (LSE: IGG).
A little over one week ago, it released a set of record-breaking H1 numbers to the market. Thanks to existing and new clients being so active, net trading revenue increased 67% to almost £417m. Pre-tax profit jumped 129% to £231.3m.
In addition to these figures, IG also announced its proposed acquisition of US site tastytrade. This will give the £3bn cap a route into the fast-growing market of exchange-traded options and futures. It will also further diversify the company’s earnings by geography.
Naturally, all investment involves risk and IG is no exception. While the shares have been riding a wave of positive momentum following the Covid-19 pandemic, there will come a time when clients become less active. The possibility of even more regulation of its industry can’t be dismissed either.
Even so, the dividends alone give me a reason to stay invested. Assuming there’s no change to its 43.2p per share payout in this financial year, IG yields 5.8% at its current share price. That’s a lot more than I’d get from even the best Cash ISA.
Like Britvic, IG’s valuation is also inviting. A P/E of 12 looks cheap to me for a market leader generating high margins and returns on the money it invests.
