Because it’s not possible to withdraw any funds until retirement age, I reckon a Self-Invested Personal Pension (SIPP) is the perfect vehicle for income stocks. It means there’s no temptation to spend any dividends received. Instead, they can be reinvested buying more shares, a method known as compounding.
Here are three high-yielding stocks that recently caught my eye.
Work and leisure
Land Securities Group (LSE:LAND) is a real estate investment trust. It must therefore return at least 90% of its annual tax-exempt property income to shareholders. Currently (28 November), it’s yielding 6.7%.
The group specialises in offices, shopping centres and retail parks. With increased working-from-home and internet shopping, this doesn’t sound like a winning combination.
But the trust achieves an average rental uplift of 8% on re-letting or renewal, which confirms that its portfolio comprises some desirable properties.
However, the commercial property sector can be volatile. And should the UK economy struggle, rents may come under pressure and more tenants could go under.
But with an approximate 30% discount to its net asset value, the stock appears to offer good value. When put alongside its healthy dividend, it could be worth considering.
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Bricks and mortar
With a yield of 9%, some might be expecting Taylor Wimpey (LSE:TW.) to cut its dividend soon. As a rule of thumb, a return close to twice that of the 10-year gilt rate (4.45%) is a warning sign of an impending reduction.
Encouragingly, the housing market is showing early signs of a recovery. With borrowing costs falling, mortgage approvals are starting to increase. The housebuilder’s dividend will become more affordable if this translates into additional sales.
But a recovery isn’t guaranteed. And post-pandemic inflation has eroded the group’s margin. The scope for price increases is limited, which means its bottom line is going to be smaller even if it returns to pre-Covid levels of completions.
However, I think the long-term fundamentals of the housing market favour Taylor Wimpey. There’s an under-supply of properties and the government’s planning reforms should make it easier to build. On this basis, it could be worth a closer look.
All at sea
Harbour Energy (LSE:HBR) has suffered from an extraordinarily high tax rate on North Sea oil and gas profits. But the group’s purchase of assets from Wintershall Dea in 2024 means it now has a wider geographic footprint and a lower operating cost per barrel.
And despite Brent crude prices falling close to $60, the group’s still expecting to generate $1bn of free cash in 2025. This is helping to underpin its 9.6% yield.
However, energy prices can be volatile. And the industry is operationally challenging. Also, other countries might follow the UK’s lead and introduce some kind of windfall tax.
But I still think the stock’s one to consider. We have yet to reach peak demand for oil or gas and the group has plenty of reserves.
Final thought
The combined yield on these three shares is 8.4%. This means a £10,000 SIPP could generate £840 in dividends over the next 12 months. If these were reinvested for 25 years, the £10,000 would grow to £61,494, all other things being equal.
Admittedly, there can never be any guarantees that these three stocks will continue their impressive payouts. However, there are lots of other dividend shares around to consider too.
