Within the FTSE 100 and FTSE 250, I’m always trying to find above-average-dividend-yield stocks. Yet if I filter for FTSE 100 stocks in the 5-7% yield space, it’s dominated by banks and mining stocks. These are very popular with retail investors, and for good reason. Yet as we go into the end of the summer, I want to find some good alternatives. Here are two that I’m thinking about buying shortly, both from the FTSE 250.
Turning to REITs
First up is the Warehouse REIT (LSE:WHR). As a listed real-estate investment trust (REIT), it has to pay out a certain amount of profits to shareholders in order to keep the perks of having this status. Although this doesn’t guarentee future dividends, it’s certainly a huge plus when I consider how sustainable the income could be.
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At the moment the dividend yield is 7.36%, with the share price down 41% over the past year. Such a large fall will likely raise some eyebrows. This is mostly due to two factors. Firstly, the business commented that “we were not immune from the rapid rise in interest costs”. Higher rates make it more expensive to get loans to purchase property.
Second, property values have fallen. Warehouse REIT flagged that the like-for-like annual valuation of the portfolio fell by 18.5% in the last year.
I note these points but don’t see it as a long-term negative. The fall has helped to push the dividend yield up to generous levels. Year-on-year rental growth increased by 5.8%, with the occupancy rate also jumping 3.1% to 95.8%. This tells me that the business is fundamentally sound. When the valuations recover in coming years, I’d expect the share price to follow.
Eyeing up utilities
The other idea is Pennon Group (LSE:PNN). The environmental utility infrastructure company is better known by the operations of South West Water, which it owns.
Over the past year, the share price has fallen by 27%. The current dividend yield is 5.94%.
Like Warehouse REIT, the fall in the share price has helped to push up the dividend yield. It’s this opportunistic move that make me interested in the stock for August.
Even though revenue increased by 4% in the last financial year, a sharp rise in costs meant that the company reported a pre-tax loss of £8.5m. The inflationary impact on energy and labour inputs, as well as higher interest rates, have been at play.
Yet I believe these are temporary setbacks that won’t be a problem further down the line. Inflation is already showing signs of easing, with it now comfortably below 10%. Further, the business will now be budgeting for higher costs in the coming year, which should ensure that there won’t be as much of a negative surprise for investors.
I like both ideas for the coming month and am considering adding both to my portfolio.
This post was originally published on Motley Fool
