While the rate of inflation has dropped back in recent months, it still remains a real threat to investors. Brexit talks may not progress as smoothly, as the market is beginning to price in, and this could lead to uncertainty regarding the future of the UK economy. The end result could be a weaker pound and higher inflation.
With that in mind, here are two high-yield stocks which could be worth buying right now, helping to keep income returns above inflation.
Reporting on Wednesday was multi-utility infrastructure and services provider Fulcrum Utility Services (LSE: FCRM). Its trading update for the financial year to 31 March showed that it’s executing its strategy. It’s also on track to perform in line with expectations, while acquisition activity remains high.
For example in February, the company acquired The Dunamis Group, an electrical infrastructure company. The integration is progressing well, with significant cross-selling opportunities on offer.
The company also announced the acquisition of CDS Pipe Services alongside its trading update. It provides a range of specialised engineering services and will be acquired for £1.4m. The deal will be satisfied through a mix of new shares in the company and cash, with the potential to act as a positive catalyst on its financial performance.
In terms of outlook, Fulcrum is forecast to post a rise in its bottom line of 5% in the next financial year. However, dividends are due to rise by around 25%, which puts the stock on a forward yield of around 4.2%. And since dividend payouts are covered 1.7 times by profit, there appears to be scope for them to rise further.
Also offering a high dividend yield at present is water services company Pennon (LSE: PNN). The company’s share price has declined by 32% in the last year as investors become increasingly cautious about the prospects for a wider utility industry. Regulatory change within the sector could lead to a squeeze on profitability, which is causing the market to include a wider margin of safety when valuing stocks.
This means that Pennon now has a dividend yield of around 7%. This is historically high for the company and is backed-up by a forecast earnings growth rate of between 10% and 12% over the next two financial years. This should allow dividends to increase by around 7% per annum during the same time period. As such, beating inflation could be relatively straightforward for investors in the company.
Furthermore, the stock has a current price-to-earnings (P/E) ratio of just 11.5. This suggests that it could be undervalued and has the potential to deliver capital growth as well as a high income return. While volatile and uncertain in the near term, the stock could prove to be a strong performer in the long run.
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Peter Stephens owns shares of Pennon Group. The Motley Fool UK has recommended Pennon Group. 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.