Broker snap: Key FTSE 250 income plays

8th Oct 2010 12:58

Broker Charles Stanley has run the microscope over constituents of the FTSE 250 index looking for key income buys and come up with five likely candidates.Though the broker was looking at stocks primarily for their attractive yields, it makes a good case for diving into the FTSE 250 for capital appreciation too. The broker notes that the FTSE 250 has outperformed its bigger brother, the FTSE 100, in eight out of the last 11 years, and that £1 invested in the FTSE 250 at the start of the millennium would now be worth £1.67, whereas the same amount invested in the FTSE 100 would be worth just 82p.The latest trawl sees entertainment media retailer HMV ejected from the broker's top picks for 2010 and replaced by Carillion, the construction and engineering group. The stock joins shopping N. Brown (shopping catalogue), Hays (recruitment), Marston's (pubs and brewing) and Thomas Cook (holidays) among Charles Stanley's favourites."Each of the above offers a yield of at least 4.0% (FTSE 250-ex investment companies historic yield 2.51%) where Charles Stanley Securities analysts are confident of a future stable or growing return," the broker note said."The law of averages suggests that the FTSE 250 Index will again outperform in 2011. However, should the index underperform, history suggests that any underperformance is likely to be muted.""Should the FTSE 250 outperform on the basis of recovery in the UK economy into 2012 the stand-out buy from our picks is Marston's with a beta of 1.46 to the FTSE 250. Other selections that should perform well into such a scenario are Thomas Cook (0.96), Carillion (0.89), and Hays (0.87). N.Brown (0.32) may be a selection, all other considerations aside, if the FTSE 250 were to weaken. However, all our selections exhibit the common characteristics of high, strong and sustainable yield," the note concludes.