3 big dividend stocks I’d buy to beat the FTSE 100 in 2019

These high-yield stocks look too cheap to ignore, says Roland Head.

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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.

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Image source: Getty Images.

When the market falls sharply as it’s done since October, good stocks often get mixed up with bad ones in investors’ rush to sell.

For Foolish investors with a long-term view, this can be a fantastic buying opportunity. In this piece I’m going to take a look at three stocks which I think could deliver FTSE-beating returns in 2019 and beyond.

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The picture looks good to me

Investors were in a rush to sell FTSE 100 broadcaster ITV (LSE: ITV) before Christmas. The shares have fallen by around 15% since late November, taking them to a five-year low.

I don’t think ITV’s performance in 2018 justifies such harsh treatment. During the first nine months of 2018, the group reported increased revenue from advertising (+2%), online (+43%) and the ITV studios production business (+10%).

One concern is that adjusted earnings are expected to fall by 4.5% to 15.3p per share. This will be the second year in which earnings have fallen, and analysts expect to see a further drop in 2019.

However, the company’s debt levels remain comfortable, in my view, and cash generation is strong. This year’s forecast dividend of 8.1p per share should be covered 1.9 times by earnings, which looks safe to me.

With the shares trading on just 9 times 2019 forecast earnings and offering a 6.5% yield, I think ITV is too cheap to ignore, despite the uncertain outlook.

An income gem?

You may not be familiar with FTSE 250 dividend stock Lancashire Holdings (LSE: LRE). This London-based firm is a specialist insurer, providing cover against natural disasters for assets such as commercial buildings, shipping and oil rigs.

The group has an impressive track record of returning surplus cash to shareholders through special dividends. The yield available on the shares has topped 10% on a number of occasions, and always been paid.

Unfortunately, 2017 saw the firm hit with a costly run of major claims, following a series of hurricanes, earthquakes and wildfires in the Caribbean, Mexico and the United States. The group reported a loss for the year and didn’t pay a special dividend.

Conditions have improved in 2018. The group is expected to pay a total dividend of $0.36 per share, giving the stock a yield of 4.8%. This yield is expected to rise to 7.7% in 2019. In my view, buying shares in Lancashire could be a good way to diversify a traditional income portfolio. I rate the stock as a long-term buy.

A super sin stock

If you’re open to investing in so-called sin stocks, then I believe online gaming operator 888 Holdings (LSE: 888) could be worth a closer look.

The firm’s shares jumped 10% in one day before Christmas, when the company confirmed profit forecasts for 2018. These suggest that the group’s adjusted earnings will be broadly unchanged at $0.20 per share this year, a forecast that’s repeated for 2019.

Flat profits can be a concern. But I don’t expect this situation to stay the same forever. Management believes the recent deregulation of the US sports betting industry will provide “significant growth opportunities” for 888, which has a lot of experience in providing such services online.

888 shares trade on 12 times forecast earnings and offer a well-supported dividend yield of 6%. In my view, this could be a good time to start buying.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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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