I’ve been looking at ‘no-brainer’ ways to narrow down my search for shares to buy right now. I recently came up with a way to narrow down the FTSE 100 to five top dividend share candidates. So, today, I’m doing the same with the FTSE 250.
I’m looking for good dividends, and there are plenty of big ones in the FTSE 250 — an index traditionally more associated with growth. Here’s how I’ve narrowed my search.
I don’t want one-off risky high yields. So I wouldn’t just buy the stocks with the biggest dividends. I’d rather have a reliable 6% that will keep going for years than a 10% yield that faces the risk of a cut. When dividends are cut, the share prices typically fall too, so the danger is two-fold.
Dividend ranking
I ranked FTSE 250 dividends in descending order, using historic yields. I calculated the yields using the current share price. To keep historic yields meaningful, I left out any companies whose last reported year-end was more than six months ago.
I quickly eliminated one possibility, Ferrexpo, which has operations in Ukraine and has been hit by the war. I’m looking to lower my risk here, after all.
Next, I checked each company’s earnings and eliminated all those that didn’t cover the dividend. Then I removed sector duplicates so I’d get some diversification. Here are the top five FTSE 250 dividend stocks I was left with:
| Company | Dividend yield | Dividend cover |
| Jupiter Fund Management | 9.8% | 1.9x |
| Synthomer | 9.5% | 2.5x |
| Direct Line Group | 9.0% | 1.1x |
| Vistry | 7.1% | 2.1x |
| IG Group | 6.1% | 2.3x |
I did have to eliminate a lot of top runners with big headline dividend yields here. But, one by one as I went down the list, they failed one or more of my criteria.
That was a bigger factor with these FTSE 250 stocks than my previous FTSE 100 selections.
It emphasises for me how risky it would be to go on dividend yield alone, and I really do want to see solid earnings too.
The five FTSE 250 picks
The low dividend cover at Direct Line concerns me a little. But the insurer is on a share buyback programme, so the cash to return to shareholders does seem to be there.
It’s interesting that housebuilder Vistry makes the cut. Sector share prices are weak right now, so that’s helped push up dividend yields. But when we face a toughening economic outlook, there are always fears about possible dividend cuts.
Synthomer has seen its share price fall back too, after a big pandemic boost. It makes things like surgical gloves, so I can see why. But so far this year the company is keeping in line with last year’s performance.
Conclusion
My top candidate so far? It’s always good to make money from other people’s money, which is what fund managers like Jupiter do. Over the years, I’ve seen investment companies doing well through good times and bad.
I won’t go out and buy these five just on the back of this filter result. But it does give me some interesting candidates for further research for my portfolio.