Recently, my wife and I have been on something of a share-buying spree. We’ve bought 10 new shares in just over a month. Six are from the FTSE 100 index, three are from the FTSE 250 index, and one is from the US S&P 500 index. Today, I’d like to focus on two mid-cap shares we now own, which we bought for their market-beating dividend yields.
Cheap FTSE 350 share #1: Direct Line
The first of our new FTSE 350 stocks is Direct Line Insurance Group (LSE: DLG). Direct Line — one of the UK’s leading providers of motor insurance — has been around since 1985. Over time, it has expanded to sell roadside recovery, life, pet, travel, and business insurance policies. Furthermore, its logo of a red telephone on wheels is one of the most recognisable in the market.
Unfortunately, changes to insurance regulations earlier this year now require insurers to offer the same terms and premiums to existing customers as new customers. This has had an immediate negative impact on insurers’ profitability, which has also been worsened by rising claims costs due to soaring inflation.
At its 52-week high, this FTSE 350 stock hit 319.4p on 4 August 2021. But on 18 July, it slumped to a 52-week low of 184.55p. Shortly after this, my wife bought Direct Line shares, after the company confirmed that it would not cut its dividend payout — for now, at least. At today’s price of 206.2p, this share — down 31.2% over the past 12 months — offers a dividend yield of 11% a year. And that’s one reason why we intend to keep it for the long term.
Dividend share #2: ITV
ITV (LSE: ITV) is the UK’s largest terrestrial commercial broadcaster. It’s also a major producer of broadcasting content. But this FTSE 250 share has been a dog over the past year, losing 36.2% of its value. Following steep price falls recently, my wife bought this cheap stock for extra dividend income, but also for potential capital gains in future. We bought in just above the 52-week low set on 5 July.
Here are ITV’s share fundamentals today, following its half-year results last Thursday (28 July):
| Share price | 73p |
| 52-week high | 127.19p |
| 52-week low | 62.04p |
| Market value | £2.9bn |
| Price-to-earnings ratio | 6.2 |
| Earnings yield | 16.1% |
| Dividend yield | 6.9% |
| Dividend cover | 2.3 |
To me, these fundamentals look very undemanding. ITV has committed to paying a total dividend of 5p per share for this financial year. This translates into a dividend yield of almost 7% a year. What’s more, this payout is covered more than twice by earnings, which should make it fairly safe. I’m also hopeful that ITV’s dividend will rise over time — and that its share price might eventually follow suit.
It’s not often I’m excited by any particular share, but I have high hopes for both of these FTSE 250 stocks. However, in the short term, I am braced for price volatility and potential declines. That’s because I’m worried about the impact of inflation, expensive fuel and energy bills, rising interest rates, slowing economic growth, and the Ukraine war. Even so, I hope that, say, in 10 years from now, we’ll have made market-beating returns from buying shares at lower prices!