If you are looking for income stocks, I highly recommend checking out the opportunities on offer in the FTSE 250. More than a third of the index’s constituents support dividend yields above the market median of 3.8%, and some stocks even offer double-digit yields.
Today, I’m going to take a look at three of these high-yield champions and explain why I think they’re great at current prices.
My first high-yield FTSE 250 pick is Ukrainian iron ore miner Ferrexpo (LSE: FXPO). This isn’t one for the faint-hearted. It’s currently without a CEO after Kostyantin Zhevago stepped aside to resolve issues at one of his other firms earlier this week. The company has also been hit by corruption allegations and corporate governance concerns.
Still, despite these issues, Ferrexpo’s underlying business is throwing off cash. Between 2016 and 2018, the group reported free cash flow from operations of $690m. Of this, $150m was paid out to investors via dividends, and $335m was used to pay down debt.
City analysts are expecting this trend to continue. They’re forecasting a net profit of $468m, implying the stock is currently dealing at a forward P/E of 2.1. Analysts also believe Ferrexpo will distribute around 30% of its earnings to investors with dividends, giving a yield of 13.6% on the current share price.
All in all, I think Ferrexpo’s low valuation and high dividend yield more than make up for the risks surrounding the business.
Newriver REIT (LSE: NRR) is also a dirt-cheap FTSE 250 dividend bargain. With its extensive exposure to commercial property, investors have been giving Newriver a wide berth recently. However, despite these investor concerns, the business has managed to outperform expectations.
At the beginning of September, the group announced it had agreed £58m of property sales in its portfolio on terms 1.2% above book value, on average.
This seems to suggest the market has oversold shares in Newriver. Indeed, at the time of writing, shares in the real estate investment trust are changing hands at a price to book value of 0.8. Recently-agreed property deals suggest the multiple should be closer to 1. These figures indicate the stock could rise by more than 20% from current levels when confidence returns to the commercial property market.
As well as the capital growth potential, investors can also look forward to a dividend yield of 10.6%, provided by income from Newriver’s diversified commercial property portfolio.
My final FTSE 250 income play is construction group Galliford Try (LSE: GFRD). After five years of growth, Galliford’s earnings slumped in its 2019 financial year, following the collapse of its joint venture partner Carillion.
The costs of this collapse have forced the company to restructure itself and reconsider how much money is paid out to shareholders every year. The dividend was cut in 2018 and reduced further in 2019.
City analysts believe Galliford’s earnings will decline further in its current financial year, but growth is expected to return in fiscal 2021. Analysts are also forecasting a dividend increase, although I’m not so optimistic on this front. I would rather see management take a conservative line and prioritise balance sheet strength over shareholder payouts.
Still, at current levels, the dividend yield is highly attractive. The stock supports a yield of 7.8%, and the distribution is covered twice by earnings per share.
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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 2019