Top 12 high yielding shares in the FTSE 250

The FTSE 100 has long been a huge source of returns for hunters of high yield shares. In the third quarter of this year 88.8% of all the dividends paid by UK quoted companies came from the blue chip index. But according to Capita, which monitors these payouts, dividend growth among the biggest companies has been falling for the past three years. By contrast, payouts by FTSE 250 stocks have been trending upwards. So what does that mean for investors and where can the highest mid-cap yields be found?

Hunting for high yield

One of the best known strategies for targeting high yield blue chips is called Dogs of Dow - better known in the UK as Dogs of the FTSE. It works by rotating into the 10 highest yielding stocks in the index every year. Our tracking of the Forecast Dogs of the FTSE screen (which looks at the rolling 1-year yield rather than the current yield) has seen a return of 3.9% over one year and 24.5% over two years. And that’s before dividends. Right now, the 10 highest forecast yielders in the FTSE 100 have a median yield of 6.2%.

One of the criticisms of the Dogs strategy is that if you follow the rules to the letter you could end up buying stocks that are highly concentrated across a few sectors. In fact, the 10 current highest yielders in the FTSE 100 are spread over just five sectors, and four of those stocks are financials. In terms of portfolio management, which we have been writing a lot about lately, this sort of high correlation can leave you very exposed if something goes wrong. Remember that banking stocks were some of the market’s best dividend payers before the sector went into meltdown in 2008.

So what if you were to screen the FTSE 250 according to the Dogs rules? Well, the good news is that there are a number of stocks that offer yields above 6.2%. The obvious problem, as you can see from the table below, is that sector concentration is still an issue. By loosening the criteria - and dropping the minimum yield to 5% - you can get a broader spread of sectors for both indexes. There are 19 companies in the FTSE 100 yielding over 5%, and 31 stocks in the FTSE 250 (Stockopedia subscribers can see those screens here and here - take a free trial if you aren’t a subscriber).

Name	Mkt Cap £m	Yield % Rolling 1 year	Div Cover Rolling 1 year	Quality Rank	Stock Rank™	Sector
Lancashire Holdings	1,200	9.39	1.15	34	44	Financials
esure	868.7	8.56	1.26	34	39	Financials
Infinis Energy	675.3	8.27	0.82	50	39	Utilities
Berkeley	3,016	8.05	1.36	83	95	Financials
Phoenix	1,692	7.34	1.59	41	93	Financials
Ladbrokes	1,065	6.97	1.10	67	62	Consumer Cyclicals
Redefine International	641.6	6.67	1.01	7	39	Financials
Taylor Wimpey	3,689	6.59	1.80	79	91	Consumer Cyclicals
Catlin	1,992	6.59	1.55	73	98	Financials
Amlin	2,229	6.37	1.53	72	96	Financials
Ferrexpo	470	6.31	3.23	75	64	Basic Materials
Tullett Prebon	598.8	6.24	1.89	76	75	Financials

It’s worth remembering that the very highest yields around should be treated with caution. They can be a warning sign that the dividend payout is at risk of being cut - something better known as a dreaded dividend trap. To help defend against high yield traps, we set a maximum limit of 10% with this screen. It’s also important to assess the financial quality of each business - something we’ve done here with the QualityRank and StockRank columns. Finally, it’s also vital to watch for the level of dividend cover. Cover of less than 1.0 means the company is likely to be paying out more in dividends than it earns, so further investigation may be warranted,

Using those rules, the highest forecast yielding stock in the FTSE 250 right now is insurance group Lancashire Holdings at 9.4%. Lancashire’s QualityRank - which examines efficiency, profitability and risk factors - is a relatively low 34 out of 100. Other insurers, including Catlin and Amlin, achieve higher QualityRank scores of 73 and 72 respectively but offer lower forecast yields of 6.6% and 6.4%. Elsewhere, the housebuilders Berkeley Group and Taylor Wimpey rank among the highest in terms of quality and offer forecast yields of 8.1% and 6.6%, while mid-cap iron producer Ferrexpo is the only mining company to make the list, with a forecast yield of 6.3%. It is important to note that a list like this might be a useful starting point, but further research is always essential.

Overall, high yield investors who are used to harvesting income from the FTSE 100 may find even higher yields in the FTSE 250, albeit in smaller and perhaps riskier companies. For those looking for the very highest yields, the mid-caps don’t offer much in the way of improved sector diversification - financial stocks still dominate. But in the hunt for shares offering yields of 5% -plus, there is a lot more to choose from.

If you are new to Stockopedia you can take a 14 day free trial. Don't forget that Stockopedia also has a growing library of investing resources - including our ebook How to Make Money in Dividend Stocks - click here to download your free investing e-book.

Read More about Lancashire Holdings on Stockopedia

Discuss Lancashire Holdings on Stockopedia