2 high-yielding dividend stocks with growth potential

These high-yielding dividend stocks that are listed in the UK have a lot of income and growth potential, thinks Andy Ross.

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Many of the highest-yielding dividend stocks at the moment are mining companies. This is why I’ve added Ferrexpo (LSE: FXPO) and Sylvania Platinum to my portfolio. However, what I don’t want to do when looking for higher-yielding shares is end up with a group from just one industry. All the more so because mining is a cyclical industry. 

So what other options are there besides miners?

Polar Capital Holdings (LSE: POLR), the boutique asset manager is one AIM-listed company that I own that I think really fits the bill in that case.

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The shares have a dividend yield of 4.75%. The payout is covered by earnings, and in my opinion, has the potential to grow further given the strong performance of the business. Assets under management continue to grow, so Polar Capital should likewise be able to grow.

Polar Capital shares trade on a price-to-earnings ratio (P/E) of 12, indicating the shares aren’t expensive. Compared to competitors such as Liontrust Asset Management, which has a P/E of 17 and Tatton Asset Management with its P/E of 26.5, the stock appears even better value.

There are a couple of things that could hit the share price though. Polar Capital’s biggest fund is technology-based. So any further weakness in that sector could hit its performance fees and see it lose clients. It also acquires other businesses, introducing the risk that it could pas too much for acquisitions or fail to integrate them properly into the group.

However, as an asset manager, its high margins, returns on capital and a lot of cash on the balance sheet (£194m) all make me confident in Polar Capital’s prospects.

Is Ferrexpo a great dividend stock?

I mentioned I added iron ore miner Ferrexpo share to my portfolio. This was partly because I think concerns over iron ore demand fading are overblown, but even more because the shares are yielding 6%.

Notwithstanding the cyclical nature of the mining industry, I think Ferrexpo is a dividend stock I’d potentially buy more of. The share price has fallen, making the shares even cheaper. They now trade on a P/E of 3.5, which is incredibly low. Outside of the mining sector, it’s hard to find P/E ratios as low as this.

When you add in that it’s a profitable, cash-generative, high-margin business there’s a lot to like, in my opinion.

Concerns over an economic slowdown in China have once again provided an opportunity to pick up the shares for far less than they were worth just a few months ago. That’s despite strong results from Ferrexpo. My belief is that over the coming years China will need vast amounts of steel to build, which is why iron ore will remain in demand.

The downside, and it’s potentially a big one, is that Ferrexpo’s facilities are in Ukraine. The country remains a politically sensitive area and still, in the eastern parts of the country, a war zone.

Overall though I think Ferrexpo has the potential to see its share price recover and provide a high dividend yield. 

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Andy Ross owns shares in Ferrexpo, Sylvania Platinum and Polar Capital Holdings. The Motley Fool UK has recommended Polar Capital Holdings. 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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