FTSE 250 shares are throwing up some big dividends at the moment. Looking at current dividend forecasts, some of the yields on offer are incredible.
Take specialist mortgage lender OSB Group (LSE: OSB), for example. Right now, City analysts expect the company to pay out 31.8p per share in dividends for 2024. Given that OSB’s share price is 392p today, the yield on offer is a magnificent 8.3%.
Remarkably, dividend coverage (the ratio of earnings per share to dividends per share) is high at 2.6. A ratio over two is generally a sign that a dividend payout is secure in the near term.
Share price gains too?
It gets better though. Currently, this stock is super cheap. Today, the forward-looking price-to-earnings (P/E) ratio is just 4.8. So, there could be potential for share price gains here too.
What’s the catch? Well, there are a few risks with this business.
The thing to understand about OSB is that it’s very focused on buy-to-let (BTL) mortgages. And there’s a fair bit of uncertainty in relation to the BTL market these days.
In recent years, taxes, government regulation, and high interest rates have made BTL property a far less attractive investment than it was in the past. As a result, many investors are offloading their properties and investing in their pensions (which are far more tax-efficient) instead.
So, there’s no guarantee that the stock will be a good investment in the long run. Still, with an 8.3% yield on offer, income investors may want to consider buying it.
A 10.8% yield for 2025?
Another FTSE 250 stock with a phenomenal dividend forecast is Lancashire Holdings (LSE: LRE). It’s a provider of global speciality insurance and reinsurance products that has operations in the UK, Australia, and Bermuda.
Currently, analysts expect a payout of 86.6 cents for 2024 followed by a distribution of 96.8 cents for 2025. At today’s share price of 684p, those forecasts equate to yields of 9.7% and 10.8%.
Dividend coverage here isn’t as high as it was with OSB. But it looks reasonable at 1.6 times for 2024 and 1.5 times for 2025.
Now, I suspect these forecasts may include ‘special’ dividends as the company has paid out a few of these in recent years. In other words, the yield could fall in the years ahead.
And that’s not the only risk here. As an insurance company, earnings could be volatile in the coming years, depending on the size of claims. In the past, the company has been faced with losses on the back of claims in relation to catastrophic events such as hurricanes and wildfires.
Management sounded quite optimistic about the future in the group’s recent H1 results, however. So, I think the stock is worth a closer look right now.
The company’s P/E ratio is just 6.4 at present. Like OSB, it’s a very cheap stock.
This post was originally published on Motley Fool
