Legal & General Group plc isn’t the only high-yield stock I’d buy today

G A Chester runs the rule over Legal & General Group plc (LON:LGEN) and a high-yield stock you’ve probably never heard of.

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Equity income specialist Neil Woodford has taken hits to some of his biggest holdings recently. However, FTSE 100 insurer Legal & General (LSE: LGEN) — ranked number three in his flagship fund and number two in his Income Focus fund — is a high-yield stock I’d be happy to buy today.

In addition to this familiar blue-chip name, I also see value in a high-yielder that most investors probably haven’t considered. It released its annual results today and I’ll come to it shortly.

Progressive and resilient

Legal & General’s dividend has increased from 7.65p in 2012 to 14.35p last year, driven by annual double-digit growth in earnings per share (EPS). That growth is set to continue this year and the dividend is forecast to rise to 15.25p, almost double the 2012 payout. At a share price of 260p, the forward yield is 5.9% and the dividend is covered a reasonable 1.6 times by forecast earnings.

The company has a strong balance sheet and market-leading businesses in areas underpinned by long-term macro and demographic growth drivers. It noted in its first-half results last month that while it’s not immune to market volatility, its successful performance through a snap UK general election and the start of Brexit negotiations “continues to demonstrate the resilience of our operating model.”

More of the same

The company also said: “Our financial ambition is to achieve a similar performance in 2016-2020 as that achieved in 2011-2015; where EPS grew by 10% per annum and net release from operations by 10% per annum.”

This ambition bodes well for healthy dividend increases over the next few years, because the board’s progressive dividend policy is aligned to “expected medium-term underlying business growth, including net release from operations and operating earnings.” The consensus among City analysts is for the dividend to increase to 16.15p next year, giving a yield of 6.2% for buyers at today’s price, and to 17p in 2019, giving a yield of over 6.5%.

A 10.3% yield

Hansard Global (LSE: HSD) offers tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors. Supported by a multi-language internet platform, a network of independent financial advisors and some financial institutions, the company has access to clients in more than 170 countries.

In its annual results today, it reported a 14% rise in assets under administration to just over £1bn, a 24% increase in new business sales to £148m and a 43% uplift in its operating cash surplus to £22.7m. A dividend for the year of 8.9p means this FTSE SmallCap firm — which is valued at £119m at a share price of 86p — has a running yield of 10.3%. However, this year marks the end of a string of bumper payouts of 8p+, which were partly supported from cash reserves.

Still a high-yielder

Hansard today reiterated its intention to reduce the 2018 dividend by 50%. It said this will better match actual cash flows and also allow the company to “take advantage of strategic and new business opportunities.” A 4.45p dividend next year still gives a high yield of over 5% and the payout should grow as those strategic and new business opportunities come through.

Finally, I’m not too concerned by Hansard’s £14.3m of contingent liabilities relating to certain client claims against a legacy business. The company believes it has a strong defence and initial court judgements are tending to support it.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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