When I’m hunting dividend shares to generate a second income, I typically start with the FTSE 100. Yet today, some of the market’s biggest yields are lurking in the FTSE 250.
Four mid-cap stocks now offer double-digit yields, while another half dozen sit in the high nines. Of course, a bumper yield isn’t always good news. Sometimes it’s simply the result of a collapsing share price.
The two stocks I’ve picked here have one thing in common. They’ve both struggled for years, but are now riding the emerging markets revival. The BRICs boom inspired by Brazil, Russia, India and China fizzled out in the financial crisis and the sector drifted for 15 years. Now it’s finally stirring again. In the six months to 30 June, the MSCI Emerging Markets Index climbed 23.9%, comfortably beating the 9.7% return from MSCI World.
This investment trust has a stunning yield
My first pick is Henderson Far East Income (LSE: HFEL). The investment trust aims to deliver a rising income alongside long-term capital growth by investing across the Asia-Pacific region. It’s increased its dividend every year this century, producing a remarkable trailing yield of 9.84% today.
The shares have still fallen 16% over five years. Those who reinvested their generous dividends will be ahead overall, but they won’t be happy with the capital return. The trust has largely been a victim of unfashionable markets rather than poor management.
Today, the picture has brightened. Its shares are up just over 13% over the 12 months. With dividends included, the total return reaches almost 23%.
I’d say it’s worth considering for income investors, although it isn’t exactly cheap, trading at a 3.5% premium to net asset value.
This dividend share has a second wind
My second FTSE 250 income pick is emerging markets specialist Ashmore Group (LSE: ASHM). As the sector languished, the fund manager just about kept the dividends flowing. However, shareholders have enjoyed just one increase over the last decade, a tiny 1.5% hike to 16.9p per share in 2020.
With investors obsessed by US technology shares, Ashmore simply had to wait for sentiment to turn. Now it has. The shares have climbed 21% over the last year and, with an 8.1% trailing yield, the total return tops 29%.
Long-term investors may still feel frustrated, though, because the shares remain around 2009 levels.
On 14 July, Ashmore reported a 7% jump in assets under management to $54bn in Q4, as investment performance and inflows improved. Chief executive Mark Coombs said rising capital spend on artificial intelligence, energy security and defence should all support emerging markets over time.
There are risks. A sustained rise in oil prices could knock the recovery off course, while a stronger US dollar or big tech rebound could cool investors’ new-found enthusiasm for emerging markets.
With forward yields of 9.6% and 8.2%, someone splitting a £20,000 Stocks and Shares ISA equally between these two shares could generate around £1,780 in dividend income over the next year, a combined yield of 8.9%.
As ever, there’s never any guarantee those payouts will be maintained, and the shares could go anywhere. But I think both are worth considering for long-term investors prepared to take a little more risk in exchange for a generous passive income stream. In fact, I’ve just added Henderson Far East Income to my watch list, with a view to buying it.
Should you invest £5,000 in Henderson Far East Income right now?
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
