Over the past month, my wife and I have been enthusiastically buying FTSE 350 shares. By and large, we’ve bought value stocks (those with low price-to-earnings ratios and high earnings yields). Also, our aim is to increase the passive income earned by our family portfolio. Thus, we’ve concentrated on buying income shares with high dividend yields.
Three new FTSE 350 shares we now own
We bought these three high-yielding stocks earlier this week. Two are from the FTSE 100, while the third is a member of the mid-cap FTSE 250 index.
| Company | Aviva | Direct Line | Persimmon |
| Business | Insurer | Insurer | Housebuilder |
| Index | FTSE 100 | FTSE 350 | FTSE 100 |
| Share price | 398.4p | 200.1p | 1,859.5p |
| 52-week high | 606.58p | 319.4p | 2,974p |
| 52-week low | 341.92p | 184.55p | 1,717.5p |
| 12-month change | -21.6% | -32.8% | -35.3% |
| Market value | £11.2bn | £2.6bn | £5.9bn |
| Price/earnings ratio | 47.9 | 8.3 | 7.6 |
| Earnings yield | 2.1% | 12.0% | 13.2% |
| Dividend yield | 7.3% | 11.3% | 12.6% |
| Dividend cover | 0.3 | 1.1 | 1.0 |
I’ll review these three FTSE 350 shares, starting with Aviva (LSE: AV). It’s the UK’s #1 provider of general insurance and a major player in life assurance and pensions. It has about 18m customers in the UK, Ireland and Canada, and employs around 22,000 staff. Recent changes to insurance regulations have forced insurers now have to offer fairer premiums to existing customers. This has hit the profitability of UK general insurers, dragging down company profits.
As a result, Aviva shares hover close to their 52-week low. But I see this slump as an opportunity to buy into a large, financially sound business at a reasonable price. What particularly draws me to this FTSE 100 share is its chunky dividend yield exceeding 7% a year. Though this is not covered by trailing earnings, it should be fully covered by 2022’s profits.
Like Aviva stock, Direct Line Insurance Group shares have taken a beating in 2022, having fallen almost a third over the past 12 months. As its market value fell, it was relegated from the Footsie to the FTSE 250. Following this price decline, the dividend yield has jumped above 11% — one of the highest in London. Although this is only just covered by trailing earnings, the insurer recently reassured investors that it has no plans to reduce this cash payout for now. Phew.
A punt on property
The third share we bought for extra income is leading housebuilder Persimmon. Again, a declining share price has boosted the property group’s dividend yield to almost 13% a year. Given that this cash yield is barely covered by earnings, I suspect the FTSE 100 firm will cut this payment eventually. But even if were to be halved, it would still be attractive to me as an income-seeking investor.
Finally, it’s important to note that company dividends aren’t guaranteed, so they can be cut or cancelled at any time. In addition, corporate earnings face strong headwinds in 2022-23, due to red-hot inflation, rising interest rates, slowing global growth and the war for Ukraine. Also, I suspect that a consumer recession might be just around the corner. Nevertheless, I’ll still buy quality shares to hold for the long-term!