How Do These Ftse 250 Stocks Keep Paying Stunning Dividends?

The FTSE 250 index of growth stocks is also home to a huge range of dividend heavyweights. Forget about the FTSE 100 for a second: many mid-cap businesses have qualities that make Footsie shares such a popular place for passive income.

Here I want to talk about three in particular, and reveal what makes them such powerful dividend payers. The companies are Primary Health Properties (LSE:PHP), City of London Investment Trust (LSE:CTY), and Rathbones (LSE:RAT).

Read on to discover what makes them passive income stars.

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Three of the best

Each of these FTSE 250 shares boast features that make them ideal dividend stocks. With Primary Health Properties, these qualities include:

• Real estate investment trust (REIT) classification, meaning at least 90% of rental profits are distributed to shareholders.
• A focus on the defensive healthcare property market.
• Tenants that are tied down on long, multi-year contracts.
• Tenancy agreements backed by government bodies (like the NHS).
• Index-linked rents that protect against rising inflation.

City of London Investment Trust benefits from:

• A focus on the dividend-heavy London stock market (95% of its holdings are UK shares).
• The trust’s ability to retain up to 15% of income in ‘good’ years, allowing it to grow dividends even if underlying holdings freeze or cut theirs.
• A portfolio dominated by financially robust FTSE 100 companies with proven business models.
• Diversification across 77 companies spanning different industries.
• Limited gearing, which helps keep borrowing costs down.

Growth AND yields

Finally, dividends at Rathbones are supported by the asset manager’s:

• Reliable recurring management fees.
• Strong record of customer retention.
• Robust balance sheet (its CET1 ratio is currently 17.4%).
• Increased scale, following the acquisition of Investec Wealth & Investment.
• Exposure to the growing asset management sector.

How have these qualities boosted their dividend performance over the years? Let’s take a look.

During the last decade, dividend yields have comfortably beaten the FTSE 250 long-term average of 2.5% to 3.5%. What’s more, each of the three companies has overcome issues like soaring interest rates, the pandemic, and a weak UK economy to keep raising shareholder payouts.

So what next?

The question is, can these dividend heroes keep on delivering? With Primary Health Properties, earnings and dividends could suffer if the NHS reduces support for primary healthcare.

City of London might disappoint if financial services companies — which make up a large proportion of the trust — come under pressure. And dividends at Rathbones could eventually stop growing if competition in the asset management sector continues to rise.

That said, any dividend share presents risk to investors. And taking everything into account, these three FTSE 250 stocks are among the UK stock market’s most reliable passive income stars. I think they’re worth serious consideration for a long-term income portfolio.

The post How do these FTSE 250 stocks keep paying stunning dividends? appeared first on The Motley Fool UK.

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Royston Wild has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties Plc and Rathbones Group Plc. 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.