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The FTSE 250‘s predominantly known as the UK’s main development index. But, it’s additionally dwelling to a variety of beneficiant dividend-paying shares as effectively. The truth is, proper now, there are greater than 60 shares with a yield of 5% or extra.
Clearly, not all of those passive revenue alternatives will turn into profitable investments. However each infrequently, it’s attainable to find a hidden gem that different traders have missed.
So for traders contemplating snapping up some FTSE 250 dividend shares as we speak, how a lot cash do they should make investments to begin incomes a £5,000 passive revenue?
Crunching the numbers
Proper now, the FTSE 250 index as an entire gives a complete common yield of three.4% – barely greater than the FTSE 100. Meaning any investor counting on index funds might want to have a complete of £147,059. However for inventory pickers, the capital necessities is perhaps considerably much less.
Take NextEnergy Photo voltaic (LSE:NESF) as a major instance to contemplate. The renewable power enterprise presently has the most important yield within the index at 12.7%! At this charge of payout, the quantity of capital wanted to earn £5,000 passively drops to only £39,370. That’s nonetheless a reasonably chunky lump sum, but it surely’s far faster to construct up with compounding in comparison with nearly £150,000.
But, sadly, excessive yields aren’t assured. And if NextEnergy can’t keep this beneficiant dividend scheme, shopping for shares as we speak may lure traders right into a entice that destroys wealth fairly than creates it. With that in thoughts, let’s take a deeper dive into the FTSE 250 enterprise.
Investigating the yield
On the subject of dividend sustainability, NextEnergy Photo voltaic has fairly a beneficial enterprise mannequin. The group owns and operates a various portfolio of photo voltaic farms primarily based primarily within the UK. These belongings generate clear electrical energy, which is offered to the power grid, producing a recurring inflation-linked income stream.
Having mentioned that, photo voltaic farms solely generate electrical energy when the solar’s shining. To date in 2025, the climate’s been fairly beneficial, leading to above-budget power era. However that’s not all the time the case, and it stays a perpetual threat that traders should take into account.
Nonetheless, even with this fixed fluctuation, administration’s prudent strategy to capital allocation has translated into 10 years of steady dividend hikes. And searching on the newest working replace, the corporate’s aiming to keep up the present shareholder payout at 8.43p per share.
In different phrases, as long as there aren’t any surprising surprises, as we speak’s double-digit yield seems prefer it’s right here to remain. But when that’s the case, why aren’t extra traders capitalising on this passive revenue alternative?
What may go incorrect?
Investor sentiment surrounding renewable power shares in 2025 is fairly weak. Like a lot of its friends, NextEnergy Photo voltaic has a chunky 48.5% gearing ratio pushed by a excessive debt burden and choice shares. And in a better rate of interest atmosphere, that may be problematic.
To date, that’s nonetheless manageable. However with long-term forecasts pointing in the direction of a downturn in power costs, dividends could must be sacrificed to maintain its monetary obligations below management. Due to this fact, this isn’t a FTSE 250 inventory I’m speeding to purchase proper now. As an alternative, my focus is on different investing alternatives.
