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I’d spend £3k right now on these cheap FTSE 250 dividend stocks for passive income

Paul Summers
·4-min read
Hand holding pound notes
Hand holding pound notes

When it comes to passive income, dividend investing is surely the ultimate side hustle. Simply buy stakes in companies that distribute a proportion of their profits to shareholders, sit back and let the money roll in. If allowed to compound, these regular payouts have the potential to dramatically increase wealth over time.

The good news is that there are still many bargain dividend payers around. Here are three from the FTSE 250 that I’d buy right now if passive income were my goal.

Passive income powerhouse

Yesterday’s brief trading update from online trading platform provider IG Group (LSE: IGG) was well received by the market and it’s not hard to see why.

Thanks to traders remaining active, IG now believes net trading revenue for the first six months of FY21 will come in at around £416m. That’s a stonking increase of 67% compared to the same period in the previous year.

Naturally, there will come a time when the market becomes less volatile and IG’s trading volumes normalise. Even so, I still think the shares are worth grabbing for the dividends on offer. Another 43.2p per share return in this financial year gives a yield of 5.1% at the current share price. That’s far better than the ridiculously low 0.6% offered by the best instant access Cash ISA

What’s more, IG’s shares still trade on just 14 times expected earnings. I think that’s got to be a steal for such a high-quality, industry-leading firm.

Sweet yield

Ingredients supplier Tate & Lyle (LSE: TATE) is another FTSE 250 member offering a juicy passive income stream right now.

Last month, the company revealed some better-than-expected numbers from the six months of trading to the end of September. These included a 1% and 9% rise in revenue and profit respectively at its Food & Beverage Solutions division. Its other business — Primary Products — “delivered steady earnings despite a significant reduction in out-of-home consumption in North America”.

Like IG, shares in Tate don’t look particularly expensive. A price-to-earnings (P/E) ratio of 12 for the current financial year looks very fair to me, even if the company is still cautious about trading going forward.

And the dividends? A possible 30p per share cash return gives a yield of 4.5% at the current share price. What’s more, this payout is expected to be covered 1.8 times by profits, suggesting it’s unlikely to be cut any time soon.

Drink in those dividends

A final stock from the FTSE 250 that I think should continue generating passive income for holders is soft drinks giant Britvic (LSE: BVIC).

Last month’s results for the year to the end of September were adequate enough given the impact of the pandemic. Although revenue fell 6.8% to £1.41m, post-tax profit rose almost 17% to £94.6m. The company also highlighted that it has extended its UK bottling deal with PepsiCo for another 20 years.

Most importantly for passive income seekers, Britvic confirmed a 21.6p dividend for the full year. This gives it a trailing yield of 2.7%.

Given that the soft drinks industry tends to bounce back strongly after setbacks, I see no reason why this company won’t increase its cash returns to holders. Indeed, if analysts are correct, the company could return 26.9p per share return in the new financial year. That gives a yield of 3.3%!

Trading on 15 times earnings, Britvic remains another highly tempting dividend pick, in my view. I’d buy.

The post I’d spend £3k right now on these cheap FTSE 250 dividend stocks for passive income appeared first on The Motley Fool UK.

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Paul Summers owns shares of IG Group Holdings. The Motley Fool UK has recommended Britvic. 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