When it comes to looking for high-yield opportunities in pursuit of passive income streams, FTSE 250 stocks can be a fruitful hunting ground.
For example, one investment trust in the index already pays quarterly dividends that add up to a 9.6% yield. On top of that, it has been growing its dividend per share annually for the past few years.
A diversified portfolio with high-growth opportunities
The FTSE 250 stock in question is Henderson Far East Income (LSE: HFEL). As the name suggests, the investment trust is focused on the Asia-Pacific region.
That gives it possible exposure to plenty of opportunities that have strong growth stories. Indeed all three of the trust’s current largest holdings (MediaTek, Taiwan Semiconductor Manufacturing and SK Hynix) operate in the semiconductor space, currently booming on the back of AI demand.
Buying growth shares then selling them for a higher price down the line could be one way to fund dividends. Typically though, growth shares are not associated with high yields.
However, growth shares are not the only string to Henderson Far East Income’s bow. It also owns some lucrative dividend shares, like 5.7%-yielding Swire Properties.
This share’s cheaper than it was five years ago!
Despite steady dividend growth and a notably high yield, Henderson Far East Income’s share price has actually fallen 19% over the past five years.
More encouragingly, recent performance has been decent. The FTSE 250 stock is up 15% over the past year, outpacing the 9% seen in the index during that time.
Still, does the long-term value destruction indicate possible investor concerns about the sustainability of the bumper dividend?
Just because a company has had a steady history of regularly raising dividends does not mean it will keep doing so.
Just look at Guinness brewer Diageo as an example. Until several years ago, it had grown its dividend annually for decades. This year though, it sliced it in half.
I see long-term potential here
I certainly see risks for Henderson Far East Income.
Its heavy exposure to the semiconductor industry is one, if the bottom falls out of that heated market. On the plus side, as recent performance shows, it is an opportunity as well as a risk.
Weakening economic indicators in some large Asian economies suggest another risk. Any economic slowdown could eat into the prices of the shares in the trust’s portfolio — and also the ability of companies it has invested in to pay large dividends.
Yet stepping back to the bigger, long-term picture, I am upbeat about this high-yield FTSE 250 stock’s ongoing potential.
I continue to see Asia Pacific as having good long-term growth prospects and reckon Henderson Far East Income stands to benefit from that given its portfolio allocation.
For investors who are focused on trying to earn regular passive income streams from their share portfolio, I see it as a stock worth considering.
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Christopher Ruane owns shares in Diageo.
