All in excess of 8%, what proportion of the top ten FTSE 250 stocks have the 'best' yield?

When considering dividend payments on FTSE 250it may seem reasonable to invest in the one with the highest yield. However, yield alone means very little.

Buying a stock with a 10% yield does not guarantee that it will pay back 10% of the investment. It may pay as little as 5% – or nothing at all. This is because the yield fluctuates constantly but the payments only occur a few times a year.

The table below shows the top 10 producers in the index.

Some investors aim to buy the stock on the ex-dividend date to receive a payout of that percentage. But the yield can be reduced or cut completely before the next one, regardless of the long-term value of the stock.

So a good dividend stock is one with a long track record of consistently paying dividends to shareholders.

Other factors to consider

A good dividend stock isn't just about yield. And think:

• Payout ratio: a sustainable ratio ensures that the company can continue to pay future dividends. Anything over 100% may not be sustainable

• Dividend Growth: leading companies have a long history of increasing annual dividend payments. Ten years or more is better

• Financial Stability: a strong balance sheet and consistent profits are essential for a company to maintain its dividend payments

It identifies a value

In the FTSE 250 top 10 by yield, only Burberry, Abdn, GCP Infrastructure Fund again TwentyFour Income Fund (LSE: TFIF) has a payment history of 10 years or more. Burberry has cut its dividends completely this year and Abdn has reduced significantly after Covid. GCP has a stable payout history but a payout ratio of 406%.

That leaves the TwentyFour Income Fund, which invests in underlying asset-backed securities such as loans.

First and foremost, this presents certain risks. If borrowers default on these loans, it can have a negative impact on the fund's performance. At the same time, if borrowers repay their loans early, the fund may receive less money than expected. Additional risks include fluctuations in interest rates that can hurt prices and low liquidity that can reduce sales force.

The price of this fund has been stable over the past 10 years, fluctuating between 100p and 120p. It has not provided any significant gains in terms of price but has maintained a yield of over 6% for most of that period. I think that makes it reliable enough to be considered as an addition to an income portfolio.

After a bad 2022, it posted positive results for the full year 2023 in July. This includes a total NAV return of 18.10% and a fourth quarter dividend of 3.96p per share. This brought the total dividend for the year to 9.96 pence per share – the highest since it was launched in 2013.

The company's chairman attributed this success to its smart investment strategy, which focuses on high-yielding, floating-rate, asset-backed funds in a rising interest rate environment. Its commitment to sharing wealth with shareholders is evident, as it pays out nearly all of its annual investment income.

Although TwentyFour appears to be the best of the top 10 dividend payers in the FTSE 250 by yield, I think there are better options. If I were looking to buy dividend stocks in an index, I would think Greencoat UK Wind, Basic Health Structures or TP ICAP – each reliable stock with a yield between 7% to 8%.