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2 high-yield stocks I’d still buy

Dividend stocks are always a great addition to any portfolio; high-yield champions are particularly attractive. However, as interest rates have been held down at record lows since the financial crisis, investors’ desire for income has helped push yields across the market down to unattractive levels, although there are still some companies that offer investors a good deal. 

Half a century of dividends 

Real estate investment trust A & J Mucklow (LSE: MKLW) has been operating for over half a century, and the company has maintained an unbroken dividend record spanning over those five decades. Alongside today’s results for the year ended 30 June, management announced yet another 3% increase in the firm’s dividend payout taking the total for the year to 22.12p, giving a dividend yield of 4.5%. 

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This yield might be only just above the FTSE 100 average of 3.9% but Mucklow’s unbroken dividend record puts the company in an exclusive ‘dividend aristocrat’ club as few other firms have been able to chalk up such an impressive dividend record. 

And today’s figures from the company show that it is creating value for investors on the balance sheet as well as via its dividend. Net asset value per share rose 6% during the period, and statutory pre-tax profit expanded 17.5% year-on-year. Gearing increased slightly to 26% from 25% during the year, but on a loan-to-value basis, gearing dropped to 20%.

Net asset value per share on 30 June 2017 was 469p, so at the time of writing, shares in Mucklow are trading at a premium to the firm’s underlying property value of 5.5%. Still, the trust’s dividend record and strong balance sheet more than make up for the high valuation. 

Return to growth

After four years of uncertainty, it looks as if City of London Investment (LSE: CLIG) is finally coming back to life. City analysts have pencilled in earnings per share growth of 50% for the fiscal year ending 30 June 2017, followed by growth of 12% for the following year. These growth projections indicate that the company is trading at a forward P/E of 10.7 and support a market-beating dividend yield of 6.3%.

Reading through the company’s correspondence to investors, it looks as if these figures underestimate its growth potential. Indeed, analysts have pencilled in earnings per share of 35p for the year ending 30 June, but the company announced in a trading update at the beginning of July that the figure is likely to be closer to 36.9p. 

City of London pays out the majority of its income to investors via dividends and management is planning to pay out 25p per share to investors this year, up slightly on analysts’ projection of 24.7p. 

As a leading emerging markets asset management group, City of London is at the mercy of client sentiment, which is driven by market moves. Over the past four years, as emerging markets have languished, the company has maintained its dividend payout at around 24p per share, even as earnings per share have bounced around. These efforts to keep the payout steady show management’s commitment to the dividend remains strong, and it’s likely that it will endeavour to maintain the dividend at its present level inthe future as it has in the past. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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