Investors targeting a second income from the stock market will know all about the benefits of dividend shares. But not all shares are made the same. A high yield looks tempting, yet without sufficient earnings coverage, share price stability, or reliable revenue, it can disappear quickly.
That’s why I always check the fundamentals before adding income stocks to a portfolio. And one lesser-known FTSE 250 stock that looks compelling today is Investec (LSE: INVP).
Established in 1974, this international specialist bank and asset manager serves a niche client base across the UK, South Africa, and Australia. It operates in three core areas: asset management, wealth and investment, and specialist banking.
It mainly provides services to high-net-worth individuals and businesses, offering private banking, mortgages, portfolio lending, and corporate finance.
Why Investec fits a second income strategy
Investec’s income appeal is strong. The dividend yield has hovered between 6%-7% for the past three years, with a target payout ratio of 35%-50% of earnings. Strong cash flow suggests coverage of 2.5 times, so company profits comfortably exceed dividend payments.
Its dedication to shareholders shines through. The annualised dividend growth rate is 6.25% a year over the past 10 years. For example, it paid 36.5p per share in 2025, up from 34.5p in 2024. This year, it was raised again to 38.5p.
Value investors will also appreciate the attractive metrics. The forward price-to-earnings (P/E) ratio’s estimated around 7.4, well below the sector average of 12.2. The price-to-book (P/B) ratio of 0.86 also looks attractive compared to the industry median of 1.4.
| Metric | Investec | Sector Average |
|---|---|---|
| Dividend Yield | 6.5% | 2.9% |
| P/E ratio | 7.4 | 12.2 |
| P/B ratio | 0.86 | 1.4 |
What are the risks?
Geopolitical tensions pose a significant threat. The Iran conflict and resulting oil price spike could reverse possible interest rate cuts, putting pressure on bank stocks. Investec’s own economists note central banks are turning cautious over rate cuts for 2026 as oil prices rise.
Inflation risk could also limit short-term growth. UK March CPI inflation climbed to 3.3% from 3%, and Investec experts warn inflation, oil markets, and equities could face long-term consequences from geopolitical disruption.
Fortunately, its balance sheet appears healthy enough to weather short-term challenges, with a current ratio of 3.3. That suggests no short-term financial worries, albeit potentially inefficient use of capital.
The bottom line
Investec’s a good example of a dividend-paying company to consider for a second income portfolio. But with inflation and interest rates set to remain high, it isn’t necessarily a ‘screaming buy’ — rather, an attractive option.
Still, those considering the stock will need to carefully weigh up these risks versus reward. That’s why, when developing an investment strategy, it always pays to include a range of stocks from various sectors. While some sectors may struggle under certain conditions, others could thrive.
With a highly diversified portfolio, you can reduce the chance of suffering heavy losses due to unexpected risks in one area. I tend to aim for a mix of utilities, retail, healthcare and finance stocks, several of which I’ve covered recently and will continue to do so here at The Twelfth Magpie.
Should you invest £5,000 in Investec Group right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Investec Group made the list?
Mark Hartley does not hold any positions in the companies mentioned.
