Don’t just think of the FTSE 250 as a great place to pick up growth shares. Today, investors can get much bigger dividends for their buck than by buying FTSE 100 stocks.
The reason? Over the last year, the Footsie’s soared in value, pulling yields lower across the index. As a result, forward yields are now:
- 3.1% for the FTSE 100.
- 3.4% for the FTSE 250.
Chesnara‘s (LSE:CSN) a top stock outside the FTSE 100 that’s (in my view) too good to ignore. It has a forward dividend yield above 7% for 2026, meaning a £20,000 lump sum here could generate an £1,460 passive income this year. Over the next three years it might deliver a total income of almost £5,000!
Here’s why I think this dividend hero merits serious consideration.
Cash hero
Chesnara’s a cash machine. And with limited growth potential, it chooses to use its formidable flows mainly to pay dividends. The result? A dividend yield that’s averaged 8.4% during the past 10 years.
Chesnara’s share price has surged over the last year, pulling the yield below those levels. But at 7.3%, its forward-looking yield remains more than double the FTSE 100 and FTSE 250 averages.
Chesnara collects cash from in-force life and pension policies that gradually run off over time. These are relatively predictable and long-dated, providing critical cash flow and earnings resilience and predictability. It’s allowed the company to grow annual dividends for 21 years on the spin.
Total dividend per share has increased by 119% since 2004 to 22.50p per share
– Chesnara 2025 annual report
Importantly, Chesnara also has considerable capital reserves it can use to support dividends if it encounters turbulence. Following recent acquisitions, its solvency coverage ratio (on a pro-forma basis) is 173%, well above its operating target of 140%-160%.
A 7.8% opportunity?
So what are the risks of buying Chesnara shares for dividends? Well financial market volatility could affect the amount if surplus cash it generates, and consequently the size of shareholder payouts. However, by investing cautiously and closely matching its assets to long-term policy liabilities, it’s managed to so far avoid this trap. I’m confident this will continue.
City analysts are expecting dividends to keep rising through to the end of 2028 at least. As a consequence, Chesnara’s dividend yield improves from 7.3% in 2026 to 7.6% this year, and again to 7.8% this year.
It means a £20,000 investment in a Stocks and Shares ISA today could — with dividends reinvested — generate a huge £4,892 passive income over the next three years alone.
And I’m optimistic Chesnara will remain one of the FTSE 250’s best dividend payers over the longer term. Analysts at RBC note that acquisition activity “increase [its] dividend runway to > 10 years” through its enhanced cash flows. I also expect dividends to grow steadily, as ageing populations across its European markets boosts life and pension market growth.
Should you invest £5,000 in Chesnara Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Chesnara Plc made the list?
Royston Wild does not hold any positions in the companies mentioned.
