An 8.5% dividend yield? I’m thinking of buying shares in this recovering FTSE 250 income gem

I’m wary when I see a dividend yield above 7%. In my experience, this is the level where payout sustainability comes into question. When a company funnels too much of its profits into dividends, day-to-day operations can suffer.

But on rare occasions, I find a company with a high yield that’s well-covered and sustainable. Such instances can be an excellent opportunity to boost a portfolio’s average yield.

Currently, Victrex (LSE: VCT) looks like just such a stock. But do the benefits outweigh the risks?

A high and reliable dividend yield

Victrex is a world-leading manufacturer of PEEK, a super-strong plastic used in planes, cars, medical gear and electronics. From mobile phones to medical implants, it’s found everywhere — so demand isn’t an issue. But trade tariffs and a tough market tore the shares down 26% in the past 12 months.

But since bottoming-out at 589p last November (2025), they’ve recovered 14.6%.

The wider fall in price has ramped up the yield, pushing it past 8%. And now that a recovery looks genuinely likely, it’s appealing to both income and growth hunters. But can it maintain that high yield?

Recent earnings results

Last year’s numbers weren’t great due to currency swings, a weak medical market and startup costs at its new China factory. Even while sales volumes rose 12%, revenue dipped and underlying profit before tax fell 21%. Earnings per share (EPS) dropped 15% to 43.9p.

Yet through it all, the board kept the dividend flat at 59.56p per share for the year, with the next payment due at the end of February.

And that’s the real draw: a high-yielding dividend stock with proven reliability. Payouts have grown around 2.8% a year even while margins have shrunk. Plus, cash coverage remains sufficient 1.23 times even with the dip in profits.

What’s more, debt’s minimal at only £49m, with plenty of cash to cover interest payments and a balance sheet that looks solid.

Currently trading on a forward price-to-earnings (P/E) ratio around 14, it’s far cheaper than historical averages. PEEK demand’s expected to grow as planes and cars become lighter and medical uses expand.

But right now, medical is soft with destocking while Asia competition’s heating up. Plus, China factory costs dragged profits down by £8m last year and are likely to do so again this year.

What does this mean for investors?

Right now, the core concern is a lack of earnings visibility. While medical implementations are expected to recover, that isn’t guaranteed. If profits don’t improve, the new China factory costs could ramp up debt. 

At the same time, the economic slowdown is hitting big customers like those in aerospace. If volumes stall or competition bites, dividends could come under pressure despite the coverage.

For a UK investor happy with moderate risk, Victrex is still worth considering — given its high yield, healthy finances, and decent growth potential (if sectors rebound).

It’s not a sure thing but, in my opinion, it could be a rare opportunity to boost the average yield in a diversified portfolio.

The post An 8.5% dividend yield? I’m thinking of buying shares in this recovering FTSE 250 income gem appeared first on The Motley Fool UK.

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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Victrex Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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