I own several high-yield stocks in my portfolio, and I’m always looking for more companies to add to the mix. Here are three stocks I have my eye on and could purchase, based on their current fundamentals.
High-yield stocks to buy
The first stock on my list is Diversified Energy (LSE: DEC). Formerly known as Diversified Gas & Oil, the independent hydrocarbon production company has a strong dividend track record.
Last year, it paid out 15.3p per share, giving a dividend yield of 10.6% on the current share price. Analysts are expecting a distribution of 16.1p this year, which translates into a yield of 11.2%.
While there’s no guarantee the company will hit these targets, I’m encouraged by its low production costs and hedging programme. These reduce the risk that volatile oil and gas prices will force the firm to cut its distribution. For these reasons, I’d buy Diversified Energy for my portfolio of high yield income stocks today.
Still, this investment might not be suitable for all, considering its environmental considerations. That’s probably the most significant challenge the enterprise will face going forward.
Back in 2013, the company laid out a multi-year cash return plan, which it has consistently outperformed ever since. Given its strong cash generation, Persimmon recently hiked its return target once again. The stock is going to pay a special dividend of 110p in August, and 125p in July 2022.
These figures suggest those who buy the shares today will see a yield of 8% on their investment. This is why I’d buy the company for my portfolio of high-yield stocks today.
That said, past performance should never be used to guide to future potential. There’s no guarantee the homebuilder will continue to pay special dividends to investors.
A drop in demand for new build properties, a fall in home prices, or an increase in interest rates are all risk factors that could jeopardise the firm’s cash return plans.
The final high-yield stock I’d buy today is Chesnara (LSE: CSN). With a dividend yield of 8.6%, at the time of writing, the stock immediately looks attractive. However, this yield says something. The firm’s balance sheet is complex, which may put some investors off.
Indeed, the firm manages books of pension and life insurance policies. These policies can be tricky to manage as even a slight increase in interest rates can raise liabilities substantially. This may lead to a dividend cut.
This risk and level of uncertainty may put some investors off from owning the shares. However, I’m comfortable with this, which is why I’d buy Chesnara for my portfolio of high-yield stocks.
I believe this is also a growth industry as many companies are trying to get these liabilities off their balance sheets. Larger operators such as Chesnara can manage these policies more effectively and with lower costs.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Chesnara. 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.