Two top high-yield stocks for income investors

Looking to beat the FTSE 100’s (INDEXFTSE: UKX) average yield? Try these high-yield options.

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While the LSE doesn’t have the hot tech stocks on offer that the NYSE, it does offer its fair share of high-yield stocks, which is perfect for investors seeking steady income streams to reinvest in other equities or enjoy as extra cash to bolster pension payouts.

One such high-yield stock that stands out in my eyes is wealth manager St. James’s Place (LSE: STJ). Where other asset managers continue to be stung by investor withdrawals, St. James’s is in a great position thanks to a stellar record of client retention, 96% in the first half of the year, and net fund inflows, up a whopping 21% in H1 to £5.2bn.

Since the company makes its money by charging an annual fee on assets under management, this growth means great things for its own bottom line. In H1 the group’s EEV operating profit bumped up 23% to £489.6m with underlying cash generation up 20% to £147.1m.

The latter is particularly important for income investors as it’s the figure that management uses to determine dividend payments. Great performance in the first half of the year meant interim dividends bumped up 20% to 18.49p per share, which suggests a hefty improvement over last year’s payouts that currently yields a solid 3.97% at today’s share price.

Although wealth managers are cyclical in nature since their assets under management will decrease during any bear market and inflows will likely dry up, I still like St James’s Place for the long term. This is because the group is investing in long-term growth by training more advisers, bulking up its range of traditional and alternative investments offered, and moving into high-growth regions such as Asia.

Overall, these solid growth prospects and a stellar record of hiking dividends make St James’s Place one dividend stock I think income-hungry investors should take a closer look at.

Low prices, high profits 

But if St James’s Place is a bit too vanilla for you, one even higher-yield option is Hostelworld (LSE: HSW). Even if it isn’t familiar to you, it’s probably a well-known brand with your kids or grandkids as the go-to platform for travellers seeking low-cost hostels across the world.

Thanks to its market-leading position, which lends significant pricing power, and its platform-based business model that takes a cut of bookings, Hostelworld boasts very impressive profitability. In the first half of its financial year the business kicked off €13.1m in adjusted free cash flow from net revenue of €42.6m.

And while net revenue and margins decreased in H1 this was mainly down to the impact of rolling out free cancellation bookings that led to treating €4.2m of revenue as deferred. On an underlying basis, the group made good progress as it refocused on its core hostel booking business and invested in growth areas like mobile booking.

But since these investment needs are quite low, the group is able to send plenty of cash shareholders’ way. In H1 the interim dividend fell slightly from 5.1 euro cents per share to 4.8 cents, but even if the group’s final dividend decreases by a similar amount, investors will still be looking at a full-year yield around 7% that is covered by earnings and backed up by a whopping €22.9m net cash position on the balance sheet. In my eyes that’s enough to warrant taking a closer look at Hostelworld.

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.

Ian Pierce 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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