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The Bank of England monetary policy committee signalled last week that interest rates are likely to fall this year. Given the current level of 5.25%, I’d expect this to fall to around 4.5% by the end of the year. So when I see a FTSE 250 stock with a dividend forecast of 6.6% (with the potential for share price growth), it’s something to delve into.
A growth stock paying dividends
The stock I’m referring to is IG Group (LSE:IGG). It provides retail and institutional investors access to a variety of financial products and services. The online trading platform has a huge range of stocks, bonds, currencies and commodities to buy and sell.
Over the past year, the share price has risen by 3%. Yet the steady growth in the dividend payments has been something that has caught my eye. Even though the FinTech company is still growing at a good pace, it isn’t retaining a huge amount of earnings. Rather, it’s choosing to pay out a good chunk as dividends to shareholders.
The business pays out two dividends a year, coinciding with the full-year and half-year results. Over the past year, a total of 45.5p per share has been paid. This comes from payments of 31.94p and 13.56p. Given the current share price of 729.5p, the current dividend yield is 6.24%.
Looking to 2025
When I look at next year, the projected dividends rise to 13.8p and 34.54p. If realised, this would total 48.34p. Of course, I don’t know what the share price will be next year. But if I assume it’s the same as currently, the yield would rise to 6.63%.
To put this in context, the average yield for the FTSE 250 is 3.44%. So the dividend forecast for IG Group is almost double the current index average.
In the last full financial year, the business generated a basic earnings per share of 86.9p. Therefore, I don’t see any problems in the current pay out ratio.
A risk to dividends going forward would be a quieter investing environment. The firm makes more money when clients are active in buying and selling. Yet should we get a rather tame few months in the markets, it could negatively impact revenue.
The best of both worlds
In the latest trading update earlier in March, the company said that revenue and adjusted profits for the full-year are expected to be in line with current market expectations.
On this basis, I feel like this could be a smart purchase for my portfolio. Not only to I get to access a FinTech stock that has a large amount of potential to grow, but I can take advantage of a dividend yield that is well above the average. I’m thinking about purchasing the stock and feel other investors should consider it too.
