2 high-yield stocks I’d still buy

These dividend champions look highly attractive to me.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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%. 

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. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »