The outlook for the FTSE 100 is uncertain so buying high-yield shares could be a sound move. Although Donald Trump’s presidency and Brexit have had a positive impact on the index’s performance, the uncertainty they’re set to create could lead to volatile share prices during the course of 2017. As such, the income return of shares could prove to be a significant part of this year’s total return. With that in mind, here are two dividend shares yielding over 6% which could be worth buying right now.
A stable utility stock
The utility sector is popular among income-seeking investors. It’s not difficult to see why, since business models are generally stable, yields tend to be above average and their defensive characteristics mean they should offer less volatility than most other sectors. Despite this, SSE (LSE: SSE) continues to offer a high yield, which indicates its shares aren’t particularly in demand at the moment.
The stock currently yields 6.3% from a dividend which is covered 1.3 times by profit. And with dividends forecast to rise 2.8% next year, they look set to remain ahead of potentially higher rates of inflation. Although the company’s bottom line is forecast to rise by just 5% this year and 6% next year, a price-to-earnings (P/E) ratio of 12 indicates there’s significant upward re-rating potential on offer.
This could be highly relevant if uncertainty in the wider market builds in the coming months. Investors could become increasingly risk-off and seek out companies such as SSE, thereby pushing its share price higher. Given its high yield and defensive characteristics, it could prove to be one of the FTSE 100’s best performers this year.
A wide margin of safety
Given the potential for uncertainty this year caused by Brexit and President Trump’s policies, obtaining wide margins of safety when buying shares could be more important than ever. Housebuilder Barratt (LSE: BDEV) currently trades on a P/E ratio of only nine, which indicates that it offers significant upward re-rating potential as well as some downside protection. Furthermore, its yield of 7.2% is among the highest in the FTSE 100. Even if its shares rise by only a small amount this year, its total return could easily be in the double-digits.
Of course, the outlook for the UK property sector is uncertain. However, recent updates from across the sector have stated that the industry remains buoyant. And since Barratt’s dividend payments are currently covered 1.5 times by profit, the current level of shareholder payouts appears to be sustainable.
In the next couple of years, dividend growth may be lacking if the UK deteriorates as Brexit becomes a reality. However, Barratt’s sound business model and improving financial strength mean it appears to be well-placed to overcome such challenges. As such, now could be a good time to buy it.
