The FTSE 250 is generally best known as an index for seeking growth stocks. But I reckon those who ignore its potential for generating cash could be missing some very tasty opportunities.
Right now, I’m seeing some very attractive dividend yields, which I think look like definite long-term buys. But what do I mean by “no-brainer”?
I’m thinking about shares in business that tend to suffer in economic downturns, like we’re in right now. But they’re in industries that have a track record of bouncing back when things improve.
Fund management
In tough times when stock markets are weak and investors are scared, investment managers will inevitably suffer.
That’s exactly what’s happened at Jupiter Fund Management (LSE: JUP). The firm has seen an outflow of funds, and poor performances in some of its holdings. Taken together, that doesn’t look good. And the Jupiter share price has slumped.
The forecast dividend yield has shot up above 10% now. To sound a caution, I wouldn’t be surprised if it’s cut. And we could be in for a further shaky spell for Jupiter shares.
But every stock market downturn I’ve ever seen has been followed by a recovery. And those who manage investments for their customers tend to do well when that happens.
Insurance
Inflationary pressures have hit insurers, particularly specialist ones. And that’s sent the Direct Line Insurance (LSE: DLG) share price plunging.
But it’s also pushed the forecast dividend yield up, again to more than 10%. Will there be a dividend cut? I think the possibility is quite high. Still, investors in the insurance business should expect this, shouldn’t they? I mean, they pay out when times are tough, and they suffer price competition when inflation is high.
So if I invest in insurance, I do so for the long term, with enough time to cover the ups and the downs. And when there’s a downturn? Well, I disagree with those who think it’s time to sell.
I expect tough times for the insurance sector for a while yet. But over the decades, it’s a highly cash-generative business. And I’d buy when it’s down, for better long-term dividend yields.
Housing
My simple, no-brainer, thinking about the housebuilding industry goes something like this… We’re suffering a chronic housing shortage in the UK, which is almost certain to be with us for a long time yet. So it’s surely a good business to invest in, isn’t it?
And after this year’s price falls, Bellway (LSE: BWY) has to be a good stock to buy now, right?
Does it need to be any more complicated than that? The City seems to think so. The predicted dividend yield is now above 6%. Will it be cut? I don’t know, but it might. And the whole business might face gloom and despondency in the next couple of years.
Long-term
But again, the strategy of investing in dividend stocks with long-term strength when they’re in a short-term downturn seems obvious to me.
With all of these, I think investors should be prepared to suffer some short-term pain. But what does that matter to those with decades-long investing horizons?