When I think about finding new stocks for my passive income portfolio, the FTSE 250 often comes to mind before the FTSE 100. Yes, the companies are smaller, but many are well-established businesses with long trading histories.
For me, the key draw is that they tend to compete for investor attention by offering higher yields and shareholder-friendly policies. That makes the index a rich hunting ground for income seekers like me.
The catch? Yields can be unusually high for a bad reason, often because the stock price is down due to underlying risks. So it pays to dig into the numbers before buying. Which brings me to one name I keep coming back to.
An income-rich challenger bank
One of my favourite mid-cap dividend stocks is OSB Group (LSE:OSB), the specialist mortgage lender behind brands such as Kent Reliance and OneSavingsBank.
Its latest full-year dividend is 35.3p per share. So 10,000 shares held today could generate roughly £3,530 of passive income this year (dependent on the ex-dividend date).
But that’s no small stake – at 547p a share, 10,000 shares would cost around £54,700. Realistically, most investors would need to build up to that many shares over several years, using regular contributions or reinvested dividends.
So is it worth the wait?
Why OSB Group looks good in the long term
OSB’s latest full-year results for 2025 show a business that remains profitable and shareholder-focused. The board increased the total dividend by 5% to 35.3p and launched a £100m share buyback programme.
Key metrics paint a steady picture:
- Share price: around 547p (up roughly 20% over five years).
- Dividend yield: between 6%-7% this year.
- Payout ratio: 46%-49%.
- Payment history: 12 years of ordinary dividends.
- Cash coverage: 2.83 times.
A payout ratio under 50% suggests the dividend is well covered by earnings, while the cash coverage above 2.5 times adds an extra layer of comfort. Management’s also guided for another 5% dividend rise in 2026, signalling confidence in future cash flows.
But no stock’s risk-free, especially not a smaller bank in the highly competitive UK finance world. As a specialist mortgage lender, OSB’s highly exposed to the UK property market. A slowdown in housing demand, falling prices, or rising arrears could impact profitability.
So how does OSB stack up against the rest of the FTSE 250?
Finding hidden gems
OSB Group’s just one promising income pick on the FTSE 250. Many others offer yields above 6%, and some even pushing 10% or more. Names such as Harbour Energy, Greencoat UK Wind, and Primary Health Properties would complement OSB as potential income builders.
That variety’s useful. I always aim to spread risk across 10-20 different stocks, ideally from different sectors. Diversification reduces the impact if one company hits trouble or an entire industry faces headwinds. It also smooths out the income stream, so you’re not relying on a single payer.
So could OSB be a core holding in a diversified income portfolio? Maybe not core, but it’s certainly worth considering as a satellite position alongside other high-yielders.
Either way, the FTSE 250 offers plenty of room to build a resilient, income-focused portfolio.
Should you invest £5,000 in OSB Group 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 OSB Group made the list?
Mark Hartley owns shares in OSB Group and Primary Health Properties.
