The next Bank of England meeting is scheduled for later this month. To the end of the year, economists forecast between two and three interest rate cuts. Yet even at the current level of 4.5%, some dividend shares can offer an investor a significantly higher yield. Granted, there are risks involved. Here are two that I believe are worthy of consideration.
Transformation taking shape
The first one is aberdeen group (LSE:ABDN), or the just-renamed-abrdn. Over the past couple of years, I’ve been a lot more cautious around the company. It had struggled with investor outflows and underperformance versus the market at some of the funds it manages.
However, the stock is now up 14% over the past year, boasting a dividend yield of 9.21%. The change in the tide has come since the start of the year. Last month it announced that it had appointed Siobhan Boylan as the new CFO. She has over 30 years of experience in finance, with investors taking this as a positive sign for the company going forward.
The other factor was strong full-year results that came out earlier in March. The business flipped from making an IFR loss before tax of £6m in 2023 to a profit of £251m. This is a big bounce back for the firm, as part of a transformation effort to grow in the wealth management space.
I think this bodes well for the sustainability of the dividend going forward. The report said that “we understand the importance of the dividend to our shareholders.” The business is back in profit, making it easier to cover the income payments from earnings.
One risk is that this might be a flash-in-the-pan. I’ve seen it before where investors get excited about a transformation, only for things to fall apart again a year down the road. The management team must ensure that they stick to the strategy to ensure 2025 is profitable too.
An energy idea
A second stock to consider is Energean (LSE:ENOG). The natural gas exploration and production company has experienced a modest 5% fall in the stock price over the past year, with a current dividend yield of 9.39%.
Energean’s primary revenue stream comes from producing natural gas and selling it under long-term gas supply agreements with utilities, industrial customers, and power plants. The Karish gas field in Israel is its most significant asset, supplying gas to the domestic market. It also has sites in Egypt, Greece, and Italy,
What I like about the company is that it’s not at a super-early exploration stage. As a result, it already has sites generating revenue. It’s not just speculation about potential projects that dictates the stock price, which can be the case for other energy companies. In a January trading update, the CEO mentioned that “2024 marked another year of growth for Energean in both sales and profitability…up 26% and 25% year on year”.
This supports the dividend in a similar way to aberdeen’s. Making a profit and growing is a recipe for increasing dividend payments in the long term.
A concern some might have is that natural gas prices are very volatile. Should prices significantly fall, it would directly feed through to lower revenue for Energean.
I think both stocks are options to consider for an income investor looking for higher-risk, higher potential reward ideas.
