The FTSE 250 has had a difficult time in 2023. The UK small cap index has seen a steady drawdown, while global markets are up. Primarily due to recession concerns, persistent inflation and credibility concerns in the Bank of England, many stocks have sold off.
While this is not welcome news for current investors in UK small caps, it presents opportunity for prospective investors looking for opportunity in the form of dividend income.
This article will cover 5 dividend stocks on the FTSE 250 to invest in for 2023 and beyond, and we will also cover the process I went through to uncover these potential investments.
Now I must caveat this by saying that this is not financial advice, and purely my own thoughts. I would always advise doing your own due diligence before investing.
Games Workshop
First on the list is Games Workshop, ticker symbol GAW. Games Workshop is a tabletop gaming company that designs and manufactures miniature figures and games, and distributes them through its own network of retail stores. It has manufacturing activities in the United Kingdom and sells mainly in the UK, Europe, North America, ANZ and Asia.
The stock is currently trading at 111 pounds and 70 pence per share.
Recently, Games Workshop released earnings that marked its eighth consecutive year of sales and profit growth, including years blighted by the pandemic disruptions. Overall revenue reached £470.8 million, compared to £414.8 million in the prior year.
Due to this, the company has substantially increased its dividend payout to 415 pence per share declared for the year. Given this increase, the yield stands at 3.71%.
While this sizeable increase has reduced the dividend cover close to 1, management must be confident in the company’s ability to grow earnings to maintain the increasing payout over time.
Not only has the stock delivered a solid dividend that is growing, but it has also experienced significant growth over time, with the stock up 260% in the past 5 years. Games Workshop pays out dividends quarterly, typically in February, May, September and November.
Cranswick
Number 2 on our list of top FTSE250 dividend stocks is Cranswick, ticker symbol CWK. Cranswick is engaged in manufacturing and supplying food products to UK grocery retailers, the food service sector and other UK and global food producers.
As of today, the stock is currently trading at £33 pounds and 16 pence per share.
Cranswick is a stock that has consistently delivered dividend increases over the years, rewarding long-term holders. As you can see from the chart, what was an annual dividend of 16.5 pence per share in 2006, has now increased to 75.6 pence per share in 2022, 458% higher than it was.
What’s more impressive is the yield-on-cost today if you had invested back then. With a stock price of £5 pounds per share in 2006, the full year 2022 dividend would yield 15.12% for a long-term investor!
This shows the power of dividend growth combined with holding quality dividend stocks for a long period of time. I recently covered a list of top 10 dividend growth stocks to invest in. If you want to find out more, click here.
The final dividend declared for 2023 raises the total dividend payout for the year to 79.4 pence per share, a 5% year-on-year increase, giving the stock a current yield of 2.39%, and with a dividend cover of 2.39, there is plenty of safety in the payout, as well as room for further growth in the future.
Cranswick pays out dividends bi-annually, typically in January and September.
Before moving on to number 3 I’m going to show you how I put together this list of stocks. Using the screener functionality provided by Stockopedia, I was able to set a series of rules to filter for a concise list of potential investments to investigate further.
To give you an idea of the types of things I look for when screening for dividend stocks, here are the rules I set.
I filtered for the FTSE250 Index for obvious reasons, and then narrowed down the list to show only those companies which scored higher than 85 on the Stockopedia Quality Rank. This is a blended score that measures companies on profitability, cashflow and margins, as well as any risks such as bankruptcy and volatility, and a fundamental trend or F-score.
What’s great about Stockopedia is that the software computes these scores daily and is available at the click of a button, so that you don’t have to spend the time yourself doing the work.
Other rules I have included are filtering for companies that have continuously paid a dividend over the last 10 years, and have a dividend cover of greater than 1.5, highlighting that dividend safety is vital for regular passive income.
The results were a list of 18 stocks that met the criteria, and from there I investigated further to compile this list.
It gets better, Stockopedia and I have partnered and through this link they are offering a free 14-day trial of their product, so that you can test this out for yourself. There is also a generous discount available to readers of Wise Wealth.
Vesuvius
Number 3 is Vesuvius, ticker symbol VSVS. Vesuvius is an engineering company, specialising in molten metal flow engineering and technology. They principally serve the steel and foundry industries. As of this article, the stock is trading at 430 pence per share.
Vesuvius has excellent trading momentum as well as fundamentals, currently trading above its moving averages, and with solid revenue and profit growth in 2022, the company is well placed to return capital to shareholders.
While the dividend reliability has been called into question a couple of times, particularly in 2009 and 2019, the firm has resumed an uptrend in dividend increases, all from a base of high dividend cover. 2022 marked a year with a fantastic dividend cover of 3, well above the screening rules, and gives ample room for future dividend growth.
On top of this, Vesuvius recently increased their full year earnings guidance, despite macroeconomic uncertainty, along with a 5% increase to the interim dividend.
With a current dividend yield of 5.18%, this provides an interesting opportunity to add a sizeable dividend return to a portfolio. Vesuvius pays out dividends bi-annually, typically in March and September.
Computacenter
Next on the list is Computacenter, ticker symbol CCC. Computacenter is a UK-based independent technology and services provider.
The company helps its customers to source, transform and manage digital technology across the domains of workplace, applications & data, cloud & data centre, networking and security. As of this video, the stock is currently trading at £21 pounds and 52 pence per share.
Over the years, Computacenter has had a massive increase in its dividend payout, making it an interesting stock for income.
With strong, double-digit earnings growth up until 2022, the company has proven its ability to reward long-term shareholders by drastically increasing its dividend payout. What was an annual dividend in 2014 of 19 pence per share has increased to 67.9 pence in 2022, which represents a current dividend yield of 3.16%.
Despite this large increase, the dividend is still well covered at 2.34, and Computacenter operates in an industry which is not synonymous with the FTSE index or high dividend payouts, giving investors an extra layer of diversification in their portfolio.
Computacenter pays out dividends bi-annually, typically in July and October.
Bodycote
Finally at number 5 is Bodycote PLC, ticker symbol BOY. Bodycote is a provider of heat treatment and thermal processing services. As of this article, the stock is currently trading at 708 pence per share.
Out of all the companies on this list, Bodycote has the most consistent dividend growth over a long period of time, with the exception of a single cut in 2011.
While revenue and profit growth are relatively low, it has proven to be a stable stock from an income perspective over the years. From a technical perspective, the stock also looks relatively healthy after a number of years of stagnation. The pandemic hindered the company financials, and it has been on a steady uptrend since.
With a current annual dividend of 21.6 pence per share, this represents a 3.05% current dividend yield, which is also well covered by profits with a current dividend cover of 1.81. Bodycote pays out dividends bi-annually, typically in June and November.
