While it’s the FTSE 100 that garners most investors’ attention, I reckon it could also be a smart idea to shop in the FTSE 250 to build a second income.
After all, there are 27 stocks on the index that offer a dividend yield of 7% or more. The Footsie, on the other hand, has just seven.
That said, I’m not just looking for the highest yield. While that may be an enticing investment strategy, it’s not always the most sustainable. Shareholders of telecommunications giant Vodafone, which is set to cut its payout in half next year, know that all too well.
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That’s why I like the look of these two FTSE 250 constituents. They offer attractive yields. But I’m also confident that they have the potential to keep rising in the years ahead. I own both stocks but if I had the spare cash I’d happily add to my position in them today.
ITV
My first pick is ITV (LSE: ITV). It’s a company that needs no introduction. Today, it yields an impressive 6.2%. That’s above the FTSE 250 average, which is 3.3%. That said, I’m more drawn in by management’s ambitions to grow its payout over the medium term.
The stock had been in the doldrums over the last few years. But it has slowly been making a recovery. In the last 12 months, it has climbed an impressive 20.4% compared to the FTSE 250’s 13.2% rise. It has posted a large chunk of its turnaround this year, rising 28.1%.
Despite its rise, I reckon the stock looks like good value for money. It trades on 15.6 times earnings. That trumps the FTSE 250 average, which is around 12. Even so, I’m comfortable paying a slight premium for a business of ITV’s quality.
Looking forward, the firm will face challenges. Streaming providers have taken the shine off of traditional TV as they continue to rise in popularity.
But ITV is aware of this and adapting as a result. It’s on track to reach its 2026 key targets, including £750m in revenue for its digital ops. I reckon now could be a smart time to think about this one.
Games Workshop
I’m also a massive fan of Games Workshop (LSE: GAW). It’s been a staple of my portfolio for a few years now.
The stock yields 3.9%. That’s far from breathtaking. But Games Workshop only uses “truly surplus cash” to pay shareholders and has an incredibly strong balance sheet with zero debt. It’s for reasons like that its dividend payment has steadily increased over the last decade.
I’m also bullish on the stock due to its leading industry position. It’s the biggest player in the miniature wargames industry by some stretch. That gives it a major edge over any rivals.
However, I think we could see competition ramp up in the coming years and that will provide a threat to the firm. Its share price has also experienced major swings in years gone by, so volatility during tough trading conditions could potentially be expected.
But even during tough times, the business seems to prove its resilience. In June it announced that it expects core revenue to come in “not less than” £490m. That’s a 10% jump from last year when revenue totalled £445m.
