Dividend stocks: Two 5%+ yielders that I’m considering right now

These two dividend stocks offer attractive 5%+ yields. Should you be buying, or should you steer clear?

| 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.

Dividend stocks appeal to those of us seeking dependable income, with many investors drawn to the stocks with the highest dividend yields. But for investors relying on regular dividends for living expenses, consistency can be just as important as the headline yield.

So before you invest in the stock because of its high dividend yield, it’s crucial to examine whether the company is likely to sustain such high dividend payout levels.

Profit warning

Consumer electronics retailer Dixons Carphone (LSE: DC) may be one stock that has recently caught the attention of dividend investors, after shares in the company plunged sharply following a profit warning on Tuesday.

The shares have since recovered slightly, but they’re still trading at 17% below their value of just a week ago. As such, the dividend yield of its shares has risen sharply, and currently stands at 5.9%. Could this be an opportunity to buy the stock on the cheap, or should you steer clear?

Dividend unchanged

Reassuringly, the company said that it expects to pay an unchanged full-year dividend of 11.25p, despite warnings that pre-tax profits could fall by as much as 21% in the coming year. What’s more, its dividend policy is backed up by resilient free cash flow generation and a strong balance sheet. Net debt is expected to improve to around £250m by the end of the 2017/18 financial year, demonstrating the company’s improved cash conversion.

Certainly, the company faces tough retail headwinds, amid weak consumer confidence in the UK and a shift towards online shopping, but it’s not all doom and gloom. The company continues to see growth in revenue and profits in its international business, and has a plan to fix its problems in the UK.

Dixons has a new leadership team in place, has big plans to address its historic underinvestment in its stores and improve its cost efficiency in the mobile market. But despite the opportunity for a turnaround in its financial performance, valuations are undemanding. On top of an attractive dividend yield, shares in the retailer trade at a tempting forward price-to-earnings ratio of just 7.4.

Asset manager

Elsewhere, Jupiter Fund Management (LSE: JUP) is another stock that deserves a closer look from income investors.

Shares in the asset manager have come under heavy pressure after recent outflows from the company’s Dynamic Bond fund. What’s more, the recent weak performance at the fixed income fund has also raised concerns that the company has become over-reliant on a small number of funds.

Re-rating

Jupiter has, until recently, been one of the fastest-growing asset managers in terms of growth in assets under management, so a re-rating of its shares appears to have been well-deserved.

And despite the concerns, earnings for the firm are still expected to grow steadily over the next few years, as Jupiter seeks to diversify away from its popular funds and push ahead into international markets, particularly in Asia. With City analysts forecasting earnings per share growth of 2% in 2018 and 5% in the following year, I’m confident about the sustainability of its dividends and its outlook going forward.

Including special dividends, City analysts expect dividends per share of 33.2p in 2018, giving prospective investors a forward dividend yield of 7.3%.

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.

Jack Tang 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.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »