A ‘too good to be true’ income stream often turns out to be just that. As a result, I think it pays to be cautious when hunting for high-yield British dividend stocks. Nevertheless, there are companies out there offering big payouts that should be sustainable, at least in my view.
Online trading platform IG Group (LSE: IGG) has been a huge beneficiary of the recent volatility seen in global stock markets. Since hitting a low of 563p back in March 2020, its share price has climbed 54% as traders have sought to capitalise on the big swing in sentiment.
After such a strong run, it’s rational to question whether this momentum will last for much longer. Even so, I believe the dividends on offer make IGG worthy of attention.
The FTSE 250-listed company is likely to confirm a full-year dividend of 43.2p per share when it reports full-year results next month. At today’s share price, that gives a yield of 5% exactly. While investing in IG naturally involves more risk, that’s a world away from the paltry interest rate offered by even the best instant access Cash ISA.
On top of this, strong free cash flow also gives me hope that, after a few years of being cautiously maintained, investors could see payouts increase from here.
Central Asia Metals
Another company offering a 5% yield is copper miner Central Asia Metals (LSE: CAML). Like IG Group, the mid-cap has done well for investors over the last year. In fact, anyone who picked up the stock in June 2020 would now be sitting on a gain of around 80%!
Of course, investing in the commodity markets isn’t for ‘widows or orphans’. The rise and fall of the gold price last year is one example of this. With this in mind, I wouldn’t hesitate to spread my money around other British dividend stocks in a variety of sectors. Having a suitably diversified income portfolio would allow me to sleep at night.
On a positive note, I see CAML’s payouts are likely to be covered more than twice by profits. This makes it very unlikely (but, naturally, not impossible) that those invested won’t receive their prized dividends. Couple this with the expected huge demand for the red metal over the next decade and I suspect CAML will be worth tucking away for a while.
A final British dividend stock offering a chunky income stream is Target Healthcare (LSE: THRL). This real estate investment trust (REIT) owns a growing portfolio of care UK homes.
Right now, the consensus among analysts is that the company will return 6.71p per share for FY21. That becomes a yield of 5.8% at the current share price.
As tempting as that dividend stream is, it’s important to remember that even the most predictable businesses can encounter crises. I probably don’t need to remind you of the awful impact of the coronavirus pandemic on Target’s industry last year.
Nevertheless, I think the investment case remains solid. Back in 2018, it was estimated that the number of people over 85 in the UK requiring care would double within 20 years. This should lead to higher demand for homes like those owned by Target. Such a development might prove even more lucrative if it’s able to capture a greater share of this fragmented market in the meantime.
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Paul Summers owns shares of IG Group Holdings. 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.