Dividend yields of 6% or more do exist, but they are very rare. Luckily, two stocks in the FTSE 250 currently support dividend yields of around 8%. These payouts look safe for the time being and are well covered by earnings per share.
Talktalk (LSE: TALK) is the first 8% yield candidate. Over the past two years, Talktalk has lurched from one disaster from another, and the shares have plunged by more than 50% from their 2015 high of 400p. However, as shares in the company have dropped the yield on offer has risen, and now shares in Talktalk support a dividend yield of 8.1%.
Even though there have been some calls for management to cut the dividend, only a small decrease in the annual payout is expected, from 15.9p for the year ending 31 March 2016 to 14.6p for the fiscal year ending 31 March 2017.
Analysts have also pencilled in a decline in the payout to 12.6p for the year after, before a slight increase back up to 13.2p for the fiscal year ending 31 March 2019. Over the same period, analysts are expecting Talktalk’s earnings per share to grow from 8.4p to 15.6p, and while the payout isn’t currently covered by earnings per share, if forecasts hold true, for the fiscal year to 31 March 2018 payout will be covered 1.1 times by earnings per share.
As mentioned above, even though there have been some calls for Talktalk to cut the company’s dividend payout, it seems that for the time being management is happy with the level of the dividend. Even considering the slight decrease in the annual payout expected for 2018, the yield will not drop below 7%.
Well-covered dividend
Like Talktalk, shares in Carillion (LSE: CLLN) have come under pressure over the last year. Shares in the construction business have lost 27% over the past 12 months, but this is great news for income seekers.
At the time of writing shares in Carillion support an impressive dividend yield of 8.5% and analysts are only expecting that payout to increase. For 2018 a dividend of 18.9p per share is expected, up from 2017’s 18.7p. What’s more, unlike Talktalk, the payout is covered 1.8 times by earnings per share.
Carillion is projected to earn 34.2p for 2017 and 35.2p for 2018. And as well as the impressive high single digit dividend yield, shares in Carillion also trade at a depressed forward earnings multiple of 6.4. This is the lowest valuation the firm has traded at during the past five years.
The bottom line
Overall, both Talktalk and Carillion are two of the London market’s most attractive income stocks. Shares in both companies support dividend yields of 8% or more and the payouts look sustainable for the near future. If I had to choose between the two, Carillion’s payout seems to be by far the most secure as it is covered twice by earnings per share, giving the company plenty of financial flexibility.
