When it comes to dividends shares to buy, I think investors can find some of the best opportunities in the FTSE 250. With that in mind, here are two mid-cap stocks that I believe are no-brainer income investments for me at current levels.
FTSE 250 income
The first company is the music licensing investment trust Hipgnosis Songs Fund (LSE: SONG).
This enterprise is one of only a handful of publicly-traded vehicles that allow investors to buy into music streaming rights. The group acquires catalogues of music streaming rights and then uses the income to fund additional acquisitions and sustain its dividend.
At the time of writing, the stock supports a dividend yield of 5.7%.
Some of its latest acquisitions include a catalogue from Fleetwood Mac songwriter and vocalist Christine McVie. This deal gave the company the song copyrights and writers’ share for seven of the 11 songs on the band’s self-titled album Fleetwood Mac, along with other intellectual property assets.
The reason why I think this stock is a no-brainer buy is that as well as its market-beating dividend yield, it also trades at its net asset value. The last reported net asset value was $1.68 (125p) per share. I think this is a steal for a portfolio of intellectual property rights, which cannot be replicated.
Those are the reasons why I would buy the stock for my portfolio today. However, I realise this might not be suitable for all investors as there is a certain level of uncertainty over how much the assets are worth. The most considerable risk the company faces is overpaying for intellectual property, which could lead to lower shareholder returns in future.
Another dividend share I’d buy
As well as Hipgnosis, I would also buy Direct Line (LSE: DLG). In fact, I already own shares in this insurance company and would not hesitate to acquire more at current levels.
Insurance can be a tricky business to get right. Correctly pricing insurance policies requires a lot of data, and companies can only really make money if they have economies of scale.
Direct Line is one of the largest insurance groups in the UK, suggesting it has the economies required to succeed in the business. It is also branching out into other areas such as automotive service centres. The goal of this strategy is to help reduce repair costs for its customers.
Based on current growth estimates, City analysts believe the stock is trading at a forward price-to-earnings (P/E) multiple of just 11.5. On top of this, the stock offers a dividend yield of 7.8%. This low valuation and high dividend yield are the main reasons I think this company is a no-brainer investment.
Still, as I noted above, insurance can be a tricky business. As such, there is no guarantee the company will meet its dividend potential. A sharp increase in insurance losses could force management to cut the dividend. That is why this FTSE 250 firm may not be suitable for all investors. But I like it.
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Rupert Hargreaves owns shares of Direct Line Insurance. The Motley Fool UK has no position in any of the shares mentioned. 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.
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