If you’re a high-yield investor looking for handsome dividends to provide you with income for years to come, these are the good times.
Sure, the FTSE 100 is down 15% from its April high of over 7,100 points, and it’s even dipped below 6,000 this week — and along with that, some individual share prices have plummeted even further. But many of the companies themselves are unaffected, and while their share prices are falling, their dividend yields are shooting up!
The insurance sector is usually good for dividends, with Direct Line Group (LSE: DLG) one of the best payers. Last year it paid a total dividend of 27.2p (including the firm’s regular special dividend) — and that amounted to a yield of 9.3% on the year-end share price.
There’s no guarantee that such a tasty special dividend will be repeated every year, of course, but Direct Line has been managing it for a while now. And in July this year, the firm paid a special dividend of 27.5p per share from the proceeds of the disposal of its International division, on top of a standard interim dividend of 4p per share.
Analysts are now suggesting shareholders could see 50p per share in cash in their hands by the end of the year, and with the share price having lost 10% in the past couple of weeks to 348p, that would provide a total yield of 14%. Future special dividends won’t be so good, but even Direct Line’s regular dividend looks set to yield around 4%.
Cash from energy
Utilities like SSE (LSE: SSE) are also considered stalwarts in the dividend game, and as world share prices slump so the already-attractive dividend yields get even shinier. SSE yielded 5.9% last year after several years of providing close to 6% per year, and those buying in now look set to do even better.
At 1,432p, the shares are down 16% from their May high, and that’s meant that the predicted total payout of 90.5p per share this year would give you a yield of 6.3% if you bought at the current price, with 2016’s mooted 93p delivering a delicious 6.5%.
Those dividends won’t be well covered by earnings, but with the utilities companies’ business being steady and predictable they are able to pay out the bulk of their profits as cash, making them amongst the most reliable on the market.
Invest in investment
Aberdeen Asset Management (LSE: ADN) has seen its share price plunge by 39% to 311p since mid-April, largely due to a net outflow of investors’ cash reported in its first quarter — the firm specializes in investing in emerging markets, and the Chinese slowdown and stock market crash have burned a few fingers and sent their owners rushing for the Sell button.
That produces a vicious downward spiral — when people get out of stocks generally the market is pushed down, and that directly affects the performance of investment management companies themselves and their own shares are pushed down even further.
The other side is that when markets pick up, companies like Aberdeen can benefit from a disproportionate gain, so is it time to buy the shares now? There’s likely to be more volatility in the short term, but Aberdeen’s forecast dividend is set to yield 5.9%, rising to 6.3% for 2016. That’s not guaranteed and further difficulties could see it cut a little, but over the long term this is a sector that bottom pickers could do well from.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.