Finding the market’s best income stocks isn’t easy but there are some stocks out there that offer sustainable, higher-than-average dividend yields; you just need to know where to look.
Here are potential candidates.
At the top of the list is Centrica (LSE: CNA). Centrica cut its dividend payout earlier this year, but the company has since recovered some composure. After cutting the annual payout to investors by 30%, Centrica’s dividend payout is now covered 1.5 times by earnings per share, which makes it safer than most.
Indeed, SSE’s dividend payout is only covered 1.2 times by earnings per share, and while National Grid‘s dividend cover also stands at 1.5 times, it’s dividend yield is only 4.7%, compared with Centrica’s 5.3%. What’s more, as Centrica is one of the UK’s largest utility companies, it’s unlikely the company will suddenly disappear overnight. Centrica currently trades at a forward P/E of 12.7.
Next up is De La Rue plc (LON: DLAR). Just like Centrica, De La Rue has fallen out of favour with the market this year after cutting its dividend payout by around 40%. Nonetheless, now that the company’s dividend payout has been reduced to a more sustainable level, it looks as if it is here to stay for the foreseeable future.
De La Rue’s new dividend payout of 25p per share is covered 1.8 times by earnings per share. At present levels, the company’s dividend yield is 5.4%. De La Rue currently trades at a forward P/E of 10.4.
The best yield around
Mid-cap telecoms group KCOM (LSE: KCOM) earns itself a place on this list thanks to the company’s highly impressive 6.1% dividend yield. The payout is currently covered 1.5 times by earnings per share and analysts are expecting management to hike the payout by 10% next year.
If City predictions prove true, KCOM is set to yield 6.8% next year and 7.0% during 2017. The company currently trades at a forward P/E of 11.5.
Falling out of favour
Ashmore (LSE: ASHM) is the riskiest pick in this article. The company’s shares currently support a dividend yield of 6.2%, but according to City forecasts, next year the company won’t be able to cover its dividend payout with earnings from operations. In other words, there’s a chance that Ashmore could be forced to slash its dividend payout next year.
City analysts currently expect Ashmore’s earnings per share to fall 23% next year to 15.5p, just below the company’s expected dividend payout of 16.7p per share. Based on these forecasts Ashmore currently trades at a forward P/E of 17.4.
Can it deliver?
Lastly, independent mail group DX (LSE: DX). DX supports a dividend yield of 7.1% or 6.1p. With earnings per share of 10.85p expected for next year, DX’s dividend payout looks safe for the time being, but the market doesn’t seem to trust the company.
You see, DX currently trades at a forward P/E of 8.0, which signals to me that investors are wary of the group’s growth. However, only you can decide if the company is suitable for your portfolio.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and KCOM Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.