3 stocks I’d buy with dividends yielding more than 5%

Roland Head reveals three of his top dividend picks, including his latest buy.

| 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.

Interest rates may have started to rise, but the interest available from cash savings is still very low. If you want to generate a useful income from your savings, I think it’s worth considering investing some of your long-term savings in good quality dividend stocks.

Today I’m going to look at three stocks which each offer a yield of at least 5%. All three pass my dividend safety tests. Indeed, I’ve already added one of these shares to my own portfolio.

Flying higher

I’m going to start small with £59m jet chartering specialist Air Partner (LSE: AIR). In addition to passenger services, this 50-year old firm provides cargo and emergency planning services for government and corporate customers.

Air Partner’s share price took a knock last year when it discovered some historic accounting irregularities. But this appears to have been a one-off problem. Pre-tax profit rose by 20% last year and management has said that trading so far this year is in line with expectations.

Broker forecasts for 2018/19 suggest that earnings will rise by about 5% to 8.9p per share. The dividend is expected to rise to 5.6p per share. These projections put the stock on a forecast P/E of 12.5 with a prospective yield of 5%. With a history of strong profitability and steady growth, I rate the shares as a buy at this level.

Taking the high road

Another opportunity in the transport sector is bus and rail operator Stagecoach Group (LSE: SGC). This well-known firm operates in the US and Canada as well as the UK, so the group’s profits aren’t dependent on a single market.

One problem faced by the firm recently was the loss of the East Coast rail franchise, which Stagecoach operated in partnership with Virgin Trains. This business contributed about 14% of operating profit, and its loss triggered a dividend cut last year.

However, the reduced dividend should be covered by non-rail free cash flow, making it a much safer payout.

I believe last year’s bad news is in already reflected in the group’s share price. And with the stock now trading on less than 10 times earnings, with a forecast yield of 5.3%, I’d be happy to buy.

Postal gains

The latest addition to my personal portfolio is Royal Mail (LSE: RMG). These shares have fallen by 26% from a May high of 632p. But I see little in the group’s outlook to justify such a gloomy view.

May’s full-year results showed that adjusted operating profit rose by 6% to £581m last year. Profit margins were broadly stable at 5.7%. And strong cash flow helped the group to repay net debt of £338m and finish the year with net cash of £14m.

Although the shift from letters to parcels will continue to require investment, these costs seem to be under control. The group’s 53% share of the parcel market provides a strong foundation for long-term planning, and is also helping to support growth in the group’s international business.

Industrial relations — a historic source of concern — seem to be improving. Strike action has been averted and the company says good progress is being made on pay and pension reforms.

All in all, I think Royal Mail looks too cheap at around 465p. So I was quite happy to pay 12 times forecast earnings to secure the group’s 5.4% dividend yield for my portfolio.

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.

Roland Head owns shares of Royal Mail. 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

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »

Abstract 3d arrows with rocket
Investing Articles

A once-in-a-decade opportunity to buy these FTSE 100 growth shares before they rocket?

Our writer highlights two FTSE 100 growth stocks he thinks could seriously outperform as interest rates are cut and economic…

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 For Beginners

Down 14% in a month, is this the FTSE 100’s biggest bargain right now?

Jon Smith mulls over whether he should buy one of the worst-performing FTSE 100 stocks based on it being an…

Read more »