When we look for dividend shares offering high yields, we generally tend to think FTSE 100, don’t we? Instead, today I’m looking at three FTSE 250 stocks all with forecast dividend yields of 10% or more.
First though, a general caution. Forecasts need to be treated carefully, and analysts are often among the last to respond to changing circumstances. Still, I think healthy forecasts can provide a useful start for our dividend searches.
Direct Line Insurance Group (LSE: DLG) shares have lost 24% over the past 12 months. And they’re down 43% in five years.
That’s helped push the forecast dividend yield up to 10.5%. Analysts see that holding over the next couple of years too, at least for now.
The main downside for me is that cover by earnings has been a bit thin in recent years, and income is falling this year. In the first nine months, total gross written premiums dropped 3.5%. Still, in these tough times, I see that as a decent performance.
At the halfway stage, CEO Penny James had said: “We … are confident in the sustainability of our regular dividends as we look ahead to the full year and beyond.“
The economy has worsened since then, but that’s still encouraging. I’ll be watching for full-year results in March.
Jupiter Fund Management (LSE: JUP) has seen its shares drop 45% over the past 12 months. But there has been something of a mini recovery going on since mid-October.
Even after the recent rebound, the forecast dividend yield still stands at a whopping 13.5%. Are the shares still cheap? Well, the company itself seems to think so, and is busy snapping them up as part of its buyback programme.
It started in October, aiming to buy back up to £10m in shares. That’s modest compared to some we see. But it does improve my confidence in the company’s ability to generate cash to sustain long-term dividends.
The next couple of years might be a bit tough, though. And I certainly wouldn’t assume the share price weakness is over yet.
November saw the biggest monthly house price fall in two years, down 1.4% since October. Wouldn’t that make Vistry (LSE: VTY) a poor bet now?
Shares in the housebuilder formerly known as Bovis Homes have dropped 44% in the past 12 months.
But this latest housing dip simply takes us back to just before price rose 1.4%, which isn’t very long ago. In fact, domestic property is still 4.4% more expensive than a year ago.
Vistry’s predicted dividend yield now stands at 10%, with the share price depressed. I can see the risks of slower property sales over the next couple of years. And the dividend could well fall in the short term. In fact, I think it’s very likely to.
But the UK’s chronic housing shortage isn’t going away.
These three stocks all have something in common. They’re all in sectors that could be hit during a recession, and all have been shunned by investors. I think contrarian investors might like that.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Jupiter Fund Management Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.