Do Super Dividends Make Vedanta Resources plc, KCOM Group PLC And Taylor Wimpey plc Into Screaming Buys?

Will the cash keep rolling in from Vedanta Resources plc (LON: VED), KCOM Group PLC (LON: KCOM) and Taylor Wimpey plc (LON: TW)?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Prices of mining and commodities shares are plunging, but in many cases that’s pushing up their potential dividend yields. One of them is diversified miner Vedanta Resources (LSE: VED), whose currently-forecast dividend yield for the year to March 2016 stands at a massive 7.1%. For the following year, the City is predicting a small drop, but it would still yield 6.8% on today’s 578p share price.

The picture is clouded by Vedanta’s reported loss last year, largely due to impairment charges, and analysts are not expecting a return to profit until 2017. That means dividends would have to come from existing cash, and even by 2017 it wouldn’t be anything like covered by earnings, so there’s a huge risk that the dividend will have to be slashed. But production is rising, with records in some commodities, and if the firm does keep paying the dividend until it recovers its profitability, and if you have the stomach for such high risk — well, you could be locking in a very strong income stream.

Cash from phones

Telecoms companies are surely less risky than miners these days, and there are good dividends to be had from some of them. In fact, KCOM Group (LSE: KCOM) is forecast to deliver a yield of 6.5% in the current year, rising to 6.8% next year, on shares trading at 89p.

On a forward P/E of only around 11, KCOM shares don’t appear to be in great demand right now, and earnings growth stagnation is at least partly behind the pessimism — EPS has been in a rut for the past three years and it’s expected to continue the same for two more.

Having said that, reporting in June on the year just ended, chief executive Bill Halbert pointed out that “Last year we began the second stage of the transformation of our business“, and he reckoned that the firm is looking to accelerate its progress. Meanwhile, the dividend should be modestly covered, and that level of income is worth considering.

Strong as houses

Now, how about a prospective dividend yield of 4.8% (rising to 5.5%) from a share that has gained 73% in the past year and has more than eight-bagged in five years? That’s what Taylor Wimpey (LSE: TW) is offering, if you believe the current City forecasts.

The whole housebuilding business has stormed ahead in the past few years, and Taylor Wimpey has been growing its earnings at at least high double-digit rates since it started its post-recession recovery. Growth is expected to slow, but there’s still a 33% rise in EPS predicted for this year followed by another 16% next, with the 190p shares on a 2015 P/E of 13, dropping to 11 on 2016 estimates.

Even after the stunning share price performance of the past few years, Taylor Wimpey still looks cheap to me — and the punters seem mostly to agree, with four out of 10 sticking a Strong Buy rating on the shares and the other six remaining neutral.

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 assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended KCOM Group. 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

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

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

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Recommended by Warren Buffett, this top hedge fund’s betting on Rolls-Royce shares

When Warren Buffett ended his previous investment partnership, he recommended Bill Ruane’s Sequoia Fund. Today, its largest investment is in…

Read more »