I bought these FTSE 250 shares for fat dividends!


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Recently, my wife and I went on a four-week buyout, picking up 10 bargain stocks. This new mini portfolio has got off to a solid start, posting around 6.6% paper gains in the early weeks. Eight of our 10 new stocks are showing gains — including these two FTSE 250 shares, which we bought for delicious dividends.

FTSE 250 share #1: Live Track

Direct Line Insurance Group (LSE: DLG) is a household name, becoming a leading motor insurance company since its inception in 1985. Today, it also sells business, life, pet and travel insurance under various brands, relying on its famous red telephone logo.

But the FTSE 250’s stock has slumped this year, following new rules that prevent insurers from overcharging existing customers. At a 52-week high on October 28, 2021, Direct Line shares hit 318p. As I write, it stands more than £1 lower at 215.8p. Here’s how this share has performed over time:

Five days 1.7%
One month 11.4%
Six months -28.6%
2022 YTD -22.7%
One year -30.2%
Five years -44.0%

Although this stock has bounced back recently, it has lost more than three-tenths of its value in one year and nearly half over five years. But we invested in these FTSE 250 shares after this sharp drop, buying around £2 per share. And what attracted us to investing in Direct Line was its huge dividends, which the group recently confirmed to be safe (at least for now).

At current stock prices, this mid-cap stock trades at a 9.3% earnings yield and offers a market-leading dividend yield of 10.5%. Thus, this cash yield is not fully covered by income, so it may be cut in the future (probably in 2023/24). However, I am a huge admirer of this £2.8 billion company, so we intend to maintain this quality business for the long term.

Dividend stock #2: ITV

Another FTSE 250 stock we bought recently was ITV (LSE: ITV). ITV is the UK’s leading terrestrial commercial broadcaster, operating six TV channels. It is also a major producer of media content, which it sells worldwide. But this cheap stock has also lost most of its value in recent years.

At a 52-week high, ITV’s share price hit 127.19p on November 12 last year. As I write, it’s hovering around 69.6p, nearly half (-45.3%) since then. Here’s how to do it over the six timescales:

Five days -5.2%
One month 5.8%
Six months -41.0%
2022 YTD -37.2%
One year -41.2%
Five years -58.3%

Frankly, owning ITV stock has been an unpleasant experience for a long time, with the stock dropping more than two-fifths in the last 12 months. Also, it has fallen by nearly three-fifths over the last half-decade. Good grief.

However, I see a potential turnaround (or takeover) at ITV. Meanwhile, the stock looks cheap to me. They offer a 16.8% earnings yield and a bumper dividend yield of 7.2% a year. What’s more, this cash yield is covered more than 2.3 times by revenue, which is a decent margin of safety.

Lastly, I expect these two FTSE 250 stocks to be quite volatile in 2022/23, due to soaring inflation, rising interest rates, and slowing economic growth. But I’m buying stocks for the long term, so I’m not panicking yet!