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Some passive income strategies can take years to deliver a meaningful level of income. But today I’m looking at two high-yield FTSE 250 shares with the potential to provide an average dividend yield of over 10% in 2025.
My sums suggest that an investment of £15k split equally across these two shares could generate a passive income of £1,565 this year.
Of course, I’d never invest all of my portfolio in just two shares. I’d want more diversification in case of dividend cuts. But I think both of these shares could be worth considering for an income portfolio.
An 11.9% yield!
My first choice is specialist insurer Lancashire Holdings (LSE: LRE). This company provides insurance and reinsurance in sectors including property, shipping, energy and aviation. It’s a niche business with experienced management. Profit margins can be high when market conditions are favourable.
I’ve followed Lancashire for a number of years and its results tend to go through cycles. Recent years have seen some big claims and high inflation, putting profits under pressure for a period.
However, these events allowed the company to push through strong price increases on its insurance. Lancashire now appears to be reaping the rewards of this more difficult period.
City brokers are forecasting near-record profits for 2024 and 2025. Cash generation’s strong, and the company’s paying out some big special dividends in addition to its ordinary payout.
Perhaps the biggest risk here is that Lancashire will suffer a major claims event – probably a natural disaster – that will upset its calculations.
The company’s expected to have exposure to the recent California wildfires, for example, although City estimates I’ve seen suggest the costs will be manageable.
So far, broker forecasts are unchanged. Analysts’ estimates suggest a total dividend of $0.96 per share in 2025, giving a potential dividend yield of 11.9%, at the time of writing.
A reliable income from property
My second choice is FTSE 250 healthcare property REIT Assura (LSE: AGR). This investment trust has a £3.2bn portfolio of hospitals, GP surgeries and other healthcare properties in the UK and Ireland.
Assura shares currently offer a forecast dividend yield of almost 9% for the 2024/25 financial year.
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One attractive feature of the healthcare sector is that lease lengths are generally longer than for other types of commercial property. Assura’s average unexpired lease length was 13 years at the end of September 2024, providing a predictable income stream.
Another attraction is that the shares currently trade at a 25% discount to their last reported book value of 49p per share. If interest rates fall, I’d expect the share price to rise to trade closer to book value.
The main risk I can see now is that Assura’s dividend could come under pressure from higher debt costs. Assura’s loan-to-value ratio’s currently over 45% — quite high for a REIT.
However, a programme of asset sales is underway to reduce borrowings. This appears to be making good progress. Most of Assura’s debt’s also at fixed rates with several years remaining, so management do have some time.
On balance, I think Assura’s dividend’s likely to remain safe. I certainly think the shares are worth considering as a possible income investment.
