The FTSE 100 is the traditional hunting ground for dividend investors, but some of the market’s most compelling yields are now sitting in the FTSE 250.
Four mid-cap stocks currently offer double-digit yields, while another half dozen sit in the high nines, making the index an increasingly attractive destination for income seekers.
A bumper yield is not always a sign of health, however, as it can simply reflect a collapsing share price rather than a genuinely generous payout.
The two stocks highlighted here share a common thread, having struggled for years before finding renewed momentum in the emerging markets revival now gathering pace.
The BRICs boom inspired by Brazil, Russia, India and China fizzled out during the financial crisis, and the sector drifted for roughly 15 years before stirring again.
In the six months to 30 June, the MSCI Emerging Markets Index climbed 23.9%, comfortably beating the 9.7% return delivered by the MSCI World index over the same period.
The first pick is Henderson Far East Income (LSE: HFEL), an investment trust targeting rising income alongside long-term capital growth by investing across the Asia-Pacific region.
The trust has increased its dividend every year this century and currently produces a trailing yield of 9.84%, a remarkable track record that sets it apart from many of its peers.
Its shares have fallen 16% over five years, meaning those who reinvested dividends will have fared better overall, though the capital return alone has been disappointing for long-term holders.
The picture has brightened considerably over the past year, with shares up just over 13% and a total return approaching 23% when dividends are included, though the stock trades at a 3.5% premium to net asset value.
The second pick is emerging markets fund manager Ashmore Group (LSE: ASHM), which kept dividends flowing through the lean years but delivered just one increase over the past decade, a 1.5% hike to 16.9p per share back in 2020.
With investors fixated on US technology stocks, Ashmore had little choice but to wait for sentiment to turn, and that shift now appears well underway.
Its shares have climbed 21% over the last year and, combined with an 8.1% trailing yield, the total return tops 29%, though the stock still sits around 2009 price levels.
On 14 July, Ashmore reported a 7% jump in assets under management to $54bn in Q4, as both investment performance and inflows improved meaningfully.
Chief executive Mark Coombs said rising capital spend on artificial intelligence, energy security and defence “should all support emerging markets over time,” offering a constructive outlook for the business.
Risks remain, including the possibility that a sustained rise in oil prices could derail the recovery, or that a stronger US dollar or big tech rebound could cool enthusiasm for emerging markets.
With forward yields of 9.6% and 8.2% respectively, an investor splitting £20,000 equally between these two stocks inside a Stocks and Shares ISA could generate around £1,780 in dividend income over the next year, representing a combined yield of 8.9%.
There is never any guarantee those payouts will be maintained, and share prices can move in either direction without warning, meaning investors must weigh the risks carefully before committing capital.
Both stocks are worth considering for long-term investors willing to accept a degree of risk in exchange for a generous and potentially growing passive income stream from underappreciated emerging markets.