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I’d buy these 2 FTSE 250 dividend stocks yielding 7% for a passive income

Rupert Hargreaves
Two colleagues working on new global financial strategy plan using tablet and laptop.

The FTSE 250 has been rising recently. However, there are still plenty of bargains on offer in the index, especially for income investors.

With that in mind, here are two FTSE 250 dividend stocks yielding 7% that could be suitable for investors seeking a passive income stream from the stock market.


International cinema operator Cineworld (LSE: CINE) attracted plenty of negative attention when it made a substantial bid for its US peer, Regalseveral years ago.

The deal loaded the company with debt, which some analysts believed would sink the business if management’s lofty growth expectations didn’t materialise.

So far, Cineworld has been proving all of its doubters wrong. Recent trading updates from the business show it’s reducing debt and capitalising on the economies of scale achieved with the deal.

At the beginning of December, the company reported total cost savings from the merger would now be $190m, up from $150m as initially expected. This is helping management reduce debt faster than expected. What’s more, the organisation’s efforts to transform its customer offering are starting to pay off.

Customers now seem happy to pay more for other services such as food and drink, which has higher profit margins. So-called “other income” expanded by 2.2% between 1 January and 1 December 2019. Box office revenue declined by 9.7% during the same period. 

Despite this performance, the stock is trading at a price-to-earnings ratio (P/E) of 8.7. It also supports a dividend yield of 7.3%. The payout is covered 1.6 times by earnings per share, which suggests the dividend is safe for the time being. The high level of cover gives Cineworld headroom to reduce debt and return cash at the same time.

Direct Line Insurance Group

Another stock that has passive income-producing potential is insurance group Direct Line (LSE: DLG). As one of the largest general insurance businesses in the UK, this company has definite competitive advantages.

Insurance can be a highly profitable business when done correctly. Unfortunately, it can also be ruinous if mistakes are made. Direct Line has proven over the past few decades this company is a leader in the field of motor and home insurance. This should continue for many years to come.

Indeed, being successful in the insurance business is all about having good quality figures. The more information a company has available, the better it is at pricing risks and making a profit on policies.

Direct Line has accrued a lot of information to help bolster its business over the past few decades.

The group’s return on equity, which was 17% in 2018, shows it’s generating a high return on shareholder funds. This is a good indication that the stock could be an attractive income investment.

It currently supports a dividend yield of 6.7% and trades at a P/E of 12.5. This implies the shares offer a wide margin of safety at current levels.

The post I’d buy these 2 FTSE 250 dividend stocks yielding 7% for a passive income appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

Motley Fool UK 2020