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A once-in-a-decade chance to buy FTSE 250 dividend shares this cheap?

Image source: Getty Images
Image source: Getty Images

So it’s the FTSE 100 for income shares, and the FTSE 250 for growth stocks, right?

The smaller index does carry a bigger portion of growth shares. And stocks tend to turn up in the top drawer when their growth stage is over and they’ve matured.

But the FTSE 250 is home to stocks valued from £400m up to more than £4bn. There’s a huge variety of companies, and some pay good dividends.

Why are they cheap?

When interest rates are high, FTSE 250 stocks tends to underperform.

They’re often more exposed to UK conditions, including inflation and interest rates, than the stock market’s giants.

Growth stocks, which are often funded by more debt, can be hit harder too. But when a whole index is out of favour, as the FTSE 250 seems to be right now, its dividend stocks can suffer too.

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I think we could have a nice spell for mid-cap stocks in the next few years. But could that mean the chances to buy smaller dividend stocks are coming to an end?

Top dividends

I really like the look of ITV (LSE: ITV) right now. It depends on UK ad sales for a fair bit of its income. And that doesn’t do well when times are tough and it’s not worth trying too hard to sell things to people who don’t have the money to buy them.

The cost-of-living crisis has put a damper on the ITV share price, which has fallen more than 50% in the past five years. But I think the company is turning around.

FY 2023 results

In its Q3 update, ITV told us “We expect ITV Studios to deliver total organic revenue growth of at least 5% per annum on average to 2026 and to grow ahead of the market as we further strengthen the business.”

FY results are due on 7 March, with forecasts suggesting ITV’s earnings will bottom out. They have earnings rising again nicely from 2024.

Meanwhile, the forecast dividend yield is up at 8.7%. It would only just be covered by earnings, so it’s far from guaranteed. And any pressure on the cash situation could give ITV shares more grief.

But buying shares in a long-term dividend machine like ITV when they’re down has to be good, right?

More dividends

I also have my eye on investment firm Abrdn, whose FY results are due on 27 February. The dividend is uncertain right now as earnings are a bit tight. But brokers are sticking to a 9% yield for the next few years.

Again, there’s risk to the dividend. But it looks like another long-term cash cow to consider buying while down.

I’m seeing some great yields from some real estate investment trusts (REITs) too. Assura and Primary Healthy Properties are both in the business of developing and letting medical real estate.

And we’re looking at forecasts dividend yields of 7.9% for Assura, and 7.6% at Primary Health.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

At 3.5%, the overall FTSE 250 yield is only a bit behind the FTSE 100’s 3.8%. I want to get me some of that.

The post A once-in-a-decade chance to buy FTSE 250 dividend shares this cheap? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and Primary Health Properties Plc. 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 2024