Image source: Getty Images
It's easy to overlook FTSE 250 as a source of dividends. But some companies in the mid-cap index are offering big returns, and forecasts show they will rise even further.
Let's start with a look at open (LSE: ABDN), whose expected dividend yield has risen to a whopping 10.8%.
This is partly due to the weak share price, which is down 54% in the last five years. A third-quarter update on October 24 didn't help, dropping the stock by six. Well, at least for a 10% drop on the day.
Broker forecasts may need to be updated. But at least for now, they look solid and show that the dividend is stable at least until 2026. However, during that time, the dividend cash would not be covered by expected earnings.
Departures
With that third-quarter update, the company reported a 2% increase in assets under management. That is positive, but modest. And we have heard about capital outflows in Asia and emerging markets.
The company told us that its “The transformation program continues.“. But until real transformation occurs, uncertainties like the ones we see today remain a big risk.
Can Abrdn continue paying dividends while stopping those pesky capital outflows and getting earnings back up? If you can, that 10.8% yield and a 159p broker price target (up 35%) could make it something to consider.
However, dividend forecasts can be wrong, and price targets can also be wrong.
Mortgage profitability
OSB Group (LSE:OSB) is a specialist mortgage lender, which may not seem like a big deal when interest rates are falling.
The share price has been having a tough time in 2024, down 20% so far this year. But there is a hefty 9% dividend yield at stake.
What's more, forecasts show it will rise to 9.3% in 2026, based on the current share price. And they also show great coverage through earnings: 2.4 times this year and 2.8 times by 2026.
And the company is buying back its own shares, so the board must think they are a good value now. With a forward price-to-earnings (P/E) ratio of just 4.6, the board could be right.
Provisional fall
But an interim report on August 15 gave the stock a kick, reducing its value by 19% in a single day.
It appears to be due to pressure on net interest margins and mortgage competition. And Bank of England rates surely still have some way to go.
So what do I think? Well, we're looking at a stock with a market capitalization of just £1.4bn. This is a far cry from the £34bn valuation of Lloyds Banking Groupthe UK's largest mortgage lender.
And smaller banks and financial services companies tend to fare worse in any tight situation.
Still, that low valuation and high dividend yield could make OSB one to consider for brave investors.
Dividends galore
There are many more high dividend yields among FTSE 250 stocks, often with solid earnings coverage and strong forecasts.
The real lesson for me is that we should forget about the index a stock is in and focus on the business itself.
