The top dividend stocks on the FTSE 250 for high yields

For dividend investors, small and mid-cap UK stocks are a blessing

It's possible that the FTSE 250 and other small-cap indices will rise next year.

Because of their low valuations and high dividend yields, UK small- and mid-cap stocks, such as those in the FTSE 250, are a veritable gold mine for income investors.

The 101st to 350th largest companies in the UK stock marketalso referred to as medium-sized or mid-cap companiesmake up the FTSE 250 index. Even though they are not large enough to be included in the FTSE 100, they are still among the biggest publicly traded companies in the UK and frequently rank among the best stocks to purchase.

"The FTSE 250 index is widely regarded as something of a barometer for the UK economy, as opposed to the FTSE 100 where about 70 percent of earnings come from overseas," states Richard Hunter, head of markets at the investment platform Interactive Investor. A "

As of December 3rd, the FTSE 250 had increased by 6.6% in terms of share price. However, this return increases to 10.4% when dividends are taken into account.

"Yields on both the FTSE 250 and the FTSE SmallCap (excluding investment trusts) indices remain above the FTSE 100," stated Chris McVey, Octopus Investments' deputy head of quoted companies.

According to McVey in Octopus Investments' most recent dividend barometer, income investors have a "once-in-a-cycle" chance to purchase UK small- and mid-cap stocks at low valuations.

According to McVey, "investors should take advantage of this now as UK smaller-cap stocks can offer them a compelling opportunity in terms of absolute and relative value, as well as income, benefiting from attractive and growing dividend streams."

For income investors, why are FTSE 250 stocks a good investment?

The price of UK stocks is lower than that of their US counterparts. This gap in the FTSE 100 has somewhat narrowed so far this year, but UK small and mid-cap stocks have not yet experienced the re-rating.

Due to this relative undervaluation, UK smaller businesses provide higher dividend yields (measured as a percentage of share price) than their larger competitors.

"Medium-sized UK higher yielding companies currently have an exceptional opportunity," stated Simon Gergel, manager of Merchants Trust (LON:MRCH). "A great opportunity set for long-term investors has been created by the highly polarized stock market and negative sentiment regarding the UK economy. The "

"We think it's unusual that these businesses are still going unnoticed by conventional income investors," McVey stated.

Three dividend stocks in the FTSE 250.

Ithaca Power.

Ithaca Energy (LON:ITH) was given a buy rating by analysts led by Werner Riding of investment bank Peel Hunt, who also increased their price target from 200p to 260p after the company's impressive third-quarter results were revealed on November 19.

According to Riding, "Ithaca has continued to build momentum year-to-date, supported by active North Sea development and strategic partnerships."

Ithaca has a remarkable yearly dividend yield of 10.9 percent as of December 4.

Band-M.

Some experts predicted that discount retailer B&M (LON:BME) would face difficulties due to the widespread pessimism regarding the UK economy at the beginning of the year.

As evidenced by the company's severe selloff, that has been the case. Despite a 55% decline in shares this year, Peel Hunt analysts are hopeful that the company's fortunes can be turned around by the new management.

In a research note, Peel Hunt analysts Jonathan Pritchard and John Stevenson stated, "New CEO Tjeerd Jegen faced a long to-do list upon arriving at B&M." "In the past, too much time was devoted to store aesthetics and not enough to understanding what customers wanted and what worked for B&M. A "

Pritchard and Stevenson "see potential for a format that clearly works to return to its past glories" if the return to retail fundamentals is successful. On November 25, they set a price target of 200p, which implies gains of 22% from the most recent close at that time.

Income investors should be aware that B&M offers an 8.2 percent dividend yield at its current low levels.

Bank TBC.

TBC Bank Group (LON:TBCG) shares have increased by 29% so far this year. It is still providing a dividend yield of 5.2% in spite of these gains.

Peel Hunt analyst Start Duncan sees this as "a delay rather than a fundamental change to the longer-term growth potential," despite the fact that forecasts for 2026 have been lowered due to regulatory changes in Uzbekistan, where the Bank conducts the majority of its business.

Discover More about the London Stock Exchange.