Income stocks are always a great addition to a portfolio. The benefit of getting paid to hold a share is very appealing, especially if an investor thinks the share price could also appreciate in value.
As we go into September, here are two ideas I believe are cheap purchases at the moment.
When volatility is your friend
CMC Markets (LSE:CMCX) is a company that has endured a rough few months. The business is one of the leading trading and investing platforms for retail investors.
The key way it makes money is through volume of transactions. The more that people buy and sell, the higher the fees earned by CMC Markets. Last year was good, with high volatility in commodities and stocks.
However, this year has been disappointing. A lack of volatility has caused it to put a dampener on net operating income forecasts for this full year. Versus the £280m from last year, it expects the figure to be in the £250m-£280m ballpark.
As a result, the stock has fallen 35% over the past three months (down 49% over the past year). That has pushed the dividend yield up to 6.45%.
I believe the market has over-reacted here. The financials aren’t amazing, but the business has delivered a profit after tax for each of the past five years. I’d expect it to do the same this year. So this is a profitable company that’s just having a rough patch.
As a result, I think it’s a cheap buy right now for investors to consider. Should we see market volatility pick up as we go to the end of the year then the share price could bounce back quickly.
Money in the wind
The second stock I’ve noted is Greencoat UK Wind (LSE:UKW). Over the past year the share price has fallen by 14.5%, currently trading at 142p.
The leading listed renewable infrastructure fund mostly invests in operating UK wind farms. Some sites include those off the coast of North Wales and also a farm 80 miles off the Yorkshire coast.
Greencoat aims to generate dividends for investors. This comes out of the revenue from the sale of power produced and green benefits accredited from the sites. It has a good track record of paying quarterly income to investors, giving me confidence that this should continue.
At the moment, the dividend yield is 5.89%, comfortably above the FTSE 250 yield of 3.43%.
In terms of risks, it’s true that the infrastructure investments are very illiquid. This means if the managers needed to raise cash quickly, it would be hard to do so. After all, how many people can buy a wind farm in a matter of days?
Ultimately, I see this as a manageable risk. Given the fall in the share price, I believe it’s another cheap income stock option for investors to think about for September.
