6 Income Stocks Yielding Over 6%

Are these worth buying? Wm. Morrison Supermarkets plc (LON:MRW), Amlin plc (LON:AML), Balfour Beatty plc (LON:BBY), Ladbrokes PLC (LON:LAD), Direct Line Insurance Group PLC (LON:DLG) and Friends Life Group Ltd (FLG)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

With interest rates set to remain low for a good while yet, dividend yields could become an even more important consideration for investors moving forward.

Bearing that in mind, here are six stocks with 6%+ yields. Are they worth buying right now?

Wm. Morrison

With a yield of 6.7%, Morrisons (LSE: MRW) looks like an ideal income stock. Even with profit sliding, dividends are set to be covered 1.3 times by profit next year, which shows that there remains sufficient headroom for the company to maintain its current level of payout.

Although Morrisons has had a torrid time in recent years, former head of Tesco Sir Terry Leahy recently said that the worst could be over for major supermarkets. That’s because wage growth is due to outstrip inflation next year. With shares in Morrisons trading at well below net asset value, capital gains could be on offer as well as a top notch yield.

Amlin

Shares in Amlin (LSE: AML) current yield a hugely impressive 6.1%. The best bit, though, is that dividends per share are set to rise by 2.8% next year, which is over twice the current rate of inflation and means that Amlin should offer real growth in shareholder payouts.

Although earnings for insurers are generally volatile as a result of the unpredictable nature of claims, Amlin has excellent dividend coverage. Indeed, dividends per share are set to be covered 1.7 times by earnings per share, which shows that even if a catastrophic even occurs, dividends should still be paid. With shares in Amlin having a price to earnings (P/E) ratio of just 9.9, they seem to offer great value right now.

Balfour Beatty

Having fallen by 45% in 2014, shares in Balfour Beatty (LSE: BBY) now yield 6.3%. However, with earnings on the slide, dividends are due to be cut next year and this means that their forward yield is lower at 4.7%.

Certainly, this is still a great yield, but comes with a relatively high degree of risk. Balfour Beatty seems unable to deliver positive earnings growth and has been hit hard in recent years despite the UK economy showing strong signs of life. With earnings set to fall by another 48% in the current year, investors may wish to wait for the company’s bottom line to show some signs of stabilising before being drawn in by a relatively high yield.

Ladbrokes

Trading on a yield of 7.6%, Ladbrokes (LSE: LAD) seems to be the income-seeking investor’s dream. However, with earnings set to fall by 31% over the next two years, shareholder payouts are set to fall over the medium term. This means that next year Ladbrokes’ yield could be 6.8% (assuming a constant share price) and fall further in future years.

Indeed, Ladbrokes has seen profit fall in three of the last five years and, although gaming is a surprisingly defensive industry, it has struggled to compete with lower cost online operators in recent years. As a result, income seekers may wish to look elsewhere for their income ‘fix’.

Friends Life

Formerly called Resolution, Friends Life has seen its share price fall by 8% in 2014. This means that shares in the life insurance company now yield a hugely enticing 6.5%. Furthermore, dividends per share have been remarkably consistent in recent years, which adds to their appeal as an income play.

Certainly, earnings growth is volatile, However, Friends Life is expected to increase its bottom line by 7% next year and, with shares in the company trading on a P/E ratio of 13.2 (versus 14 for the FTSE 100), they seem to offer good value for money, too.

Direct Line

After releasing encouraging results last week, Direct Line (LSE: DLG) seems to be making strong progress. With shares in the insurer currently trading on a P/E ratio of 11.2 and yielding a whopping 8.6%, it looks like a top notch value and income play.

Investors, though, should be aware that a planned dividend cut next year means that shares in Direct Line will yield 7.9% next year, but it means that the company will have sufficient headroom when making its payments to shareholders. With dividend coverage due to be around 1.2 next year, Direct Line seems to be a relatively reliable income play that could be well worth buying right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Peter Stephens owns shares of Amlin and Morrisons. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

1 dividend stock with a juicy yield to boost returns!

This Fool likes the look of this dividend stock to boost his passive income stream and explains why he would…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Here’s 1 growth stock primed for long-term growth and returns!

Jabran Khan is hunting for a growth stock to boost his holdings. Could this financial advisory business be the right…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 FTSE 250 shares I bought for extra dividends

I plundered the FTSE 250 index to find these three cheap stocks with ailing share prices. All three firms pay…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m buying cheap FTSE 100 stocks to boost my passive income!

Buying dividend stocks today could considerably improve the amount of passive income I make. Here are some FTSE 100 stocks…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Am I crazy for buying Royal Mail shares?

Royal Mail shares have collapsed by almost half in 2022. And with group profits falling and strike action under way,…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

2 recession-resistant stocks to buy right now

After the pandemic slump, we're now facing a UK recession. Many are looking for recession-resistant stocks to protect their money.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE 100 stock continues to fall! Should I buy shares?

This Fool takes a closer look at a FTSE 100 quality assurance stock. As the shares continue to fall, is…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Is the Rolls-Royce share price about to surge?

The Rolls-Royce share price continues to fall as market patience wears thin. But could it be on the brink of…

Read more »