Buying shares primarily for the dividends they generate might be the investing equivalent of watching paint dry, but research shows it to be one of the easiest and most reliable ways of building wealth over the long term.
With this in mind, here are two picks from the FTSE 250 that I think could be excellent additions to any income-focused portfolio.
Bouncing back
Turn the clock back just over a year and owners of IG Group (LSE: IGG) — the self-proclaimed “global leader in online trading” — could be forgiven for becoming rather concerned for their capital. Shares in the company plummeted almost 40% on December 6 2016 after the Financial Conduct Authority revealed that it would bring into force new restrictions on the CFD and spread betting industry.
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Since then, trading at the £3bn cap has gone from strength to strength, highlighting how the best time to take a position in a stock can often be when others are fearing the worst. In the six months to the end of November, IG delivered record revenue and pre-tax profit of £268.4m and £136.2m respectively. Should recent market volatility continue (a good thing given IG’s line of business), I can see these numbers pushing even higher going forward.
Thanks to its reassuringly proactive approach, IG also looks like it might come through the introduction of new rules relatively unscathed. While stating that the “disproportionate focus on leverage” by regulators had frustrated many of its experienced retail clients, the company did reiterate its view that the best way of improving the situation is to ensure that products are “only marketed to the right people in the right way.“
Although capital gains might be somewhat less impressive going forward, the case for holding IG’s stock for its dividends remains strong. The company is forecast to return just under 38p a share to holders in the current financial year, equating to a yield of 4.7%.
With strong free cash flow, high returns on capital and — according to CEO Peter Hetherington — a focus on developing new products and “establishing operations in new geographies,” I remain a big admirer of the stock.
Big dividends
Saying that the popularity of online retailing (and subsequent need for appropriately-sized warehouses) has exploded in recent years still feels like something of an understatement. With space at a premium, I continue to believe that real estate investment trust Tritax Big Box (LSE: BBOX) is a great option for those looking for solid dividend payers.
Based on its most recent update, the company enjoyed a stellar 2017. All told, the £2bn cap purchased 11 new warehouses for a total of £435m and 124 acres of “distribution development land” last year. By the end of December, Tritax’s portfolio consisted of no less than 46 assets, 100% of which were either let or pre-let to tenants and providing an annual rental income of just under £125m. Since the financial year ended, another three assets have been acquired, further underlining just how quickly the company is growing.
With full-year results due on 7 March, the company has already stated that it is targeting an aggregate dividend of 6.4p per share for 2017, equating to a yield of 4.6%. Positively for holders, this is set to increase to 6.7p in 2018, fully covered by adjusted earnings and leaving shares offering a forecast yield of 4.8%.
