These companies have seductive dividend yields above 7%.
With the stock market having already bounced more than 40% of its March low, now is the time to turn to dividend paying shares.
The easy capital gains have already been made, although some FTSE 100 companies like Tesco (LSE: TSCO), Prudential (LSE: PRU) and even BAE Systems (LSE: BA) still look relatively cheap and have some good days ahead of them.
Still, a jump of 40% in around 6 months is very substantial, and unlikely to be repeated in the next 6 months, or indeed the next 12 months. To put the gain into some perspective, the last time the FTSE 100 rose 40% it took over 2 years, from 2005 to 2007. And we all know what happened after it peaked in October 2007…
You Don't Want The Market To Keep Flying
Although the market rally has been a welcome relief, believe me when I say we don't want it to keep surging higher and into the realms of overvalued. There are two reasons…
1) Unless you are retired, hopefully you are still regularly committing more money to the market. If so, you want to buy when the market is lower, not higher.
2) Inexperienced investors may get sucked into buying into an overvalued market just before it heads south. It could put them off investing for life.
Even if the market remains relatively flat for the next few months and even years, there is good money to be made. You'll just have to do it the old fashioned way -- patiently, slowly, and rely on dividend income to make up a good portion of your total returns.
Beware Of Ugly Sisters
And what better time to turn to dividends, when the relative attractiveness of the other options, namely cash and gilts, are like comparing the ugly sisters to Kara Tointon or Mirranda Kerr?
There are some ultra-high yielding companies out there on the stock market, but beware of ugly sisters wearing bikinis. You don't have to look too hard to work out companies like Andrew Sykes Group (LSE: ASY) and Northgate (LSE: NTG), trading on trailing dividend yields of 35.4% and 12.2% respectively, are likely to have forward dividend yields of 0%.
Yet there are some companies which just might be able to hold their dividends, and if they do, investors will look back and wonder why they didn't load up on these juicy high-yielding shares.
Juicy High Yielders
For example…
| Company | Share Price | Historical Dividend | Dividend Yield |
|---|
| Chesnara (LSE: CSN) | 164p | 15.6p | 9.5% |
| Umeco (LSE: UMC) | 222p | 17.5p | 7.9% |
| Interior Services Group (LSE: ISG) | 170p | 13.2p | 7.8% |
| Office2Office (LSE: OFF) | 155p | 11p | 7.1% |
These are not formal recommendations, but are examples of companies that will hopefully at least hold their dividends. In the case of Office2Office, forecasts suggest the dividend may actually rise rather than being slashed.
Dividend Yields of 8% And Maybe More
Maynard Paton over at Champion Shares has just released his latest update, which includes a list of three respectable small-caps that are keen to maintain -- or even raise -- their dividends despite falling profits. None of the companies highlighted above make his list, but those that did yield around 8%. Click here for more information.
In years gone by, income investors would die for dividend yields of 6%, 7% and 8%. Today, such companies are in relatively abundant supply. But you do have to do your homework -- that 15% yielder can be a wealth destroyer if you buy the wrong company.
More on the economy and the markets:
> If you're in the market for buying and selling shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Click here to find out how you can open an account for free today. There is no obligation to trade.
> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
