When contemplating dividend shares on the FTSE 250, it might sound logical to put money into the one with the very best yield. Nevertheless, the yield alone means little or no.

Shopping for a inventory with a ten% yield doesn’t assure it’ll pay out 10% on the funding. It’d solely pay 5% — or nothing in any respect. It’s because yields fluctuate consistently however funds happen only some occasions a yr. 

The desk under reveals the present prime 10 yielders on the index.

Some traders intention to purchase a inventory on the ex-dividend date to safe a payout at that proportion. However the yield may very well be lowered or lower fully earlier than the following one, negating the inventory’s long-term worth.

So a superb dividend inventory is one with a protracted monitor report of constantly paying dividends to its shareholders.

Different components to think about

A great dividend inventory isn’t solely in regards to the yield. Additionally take into account:

• Payout Ratio: a sustainable ratio ensures the corporate can proceed paying future dividends. Something above 100% might not be sustainable

• Dividend Progress: one of the best firms have a protracted historical past of accelerating annual dividend funds. Ten years or extra is preferable

• Monetary Stability: a powerful stability sheet and constant earnings are important for an organization to keep up its dividend funds

Figuring out worth

Within the FTSE 250 prime 10 by yield, solely Burberry, Abdn, GCP Infrastructure Fund and TwentyFour Revenue Fund (LSE: TFIF) have a 10-year or longer historical past of funds. Burberry lower its dividends fully this yr and Abdn lowered them considerably after Covid. GCP has a comparatively steady cost historical past however a payout ratio of 406%. 

That leaves TwentyFour Revenue Fund, which invests in securities backed by underlying belongings like loans.

In the beginning, this presents some dangers. If debtors default on these loans, it might negatively influence the fund’s efficiency. On the similar time, if debtors repay their loans early, the fund could obtain much less earnings than anticipated. Further dangers embrace rate of interest fluctuations that might damage the price and low liquidity that might cut back promoting energy.

The fund’s price has been comparatively steady for the previous 10 years, fluctuating between 100p and 120p. It hasn’t supplied any important returns by way of share price however has maintained a yield above 6% for many of that interval. I feel that makes it sufficiently dependable to think about as an addition to a passive earnings portfolio.

After a foul 2022, it posted constructive full-year 2023 ends in July. These included a NAV whole return of 18.10% and a fourth-quarter dividend of three.96p per share. This introduced the entire dividend for the yr to a whopping 9.96 pence per share – a record-breaking excessive since its launch in 2013. 

The corporate’s chairman attributed this success to its savvy funding technique, specializing in higher-yielding, floating-rate, asset-backed securities within the then rising rate of interest setting. Its dedication to sharing the wealth with shareholders is obvious, because it constantly pays out nearly all extra funding earnings yearly.

Whereas TwentyFour seems to be one of the best within the prime 10 dividend-payers on the FTSE 250 by yield, I feel there are higher choices. If I have been trying to purchase dividend shares on the index, I’d take into account Greencoat UK Wind, Main Well being Properties or TP ICAP — every dependable shares with yields between 7% to eight%.