While obtaining a high dividend yield has become increasingly important due to low interest rates, ensuring that a company’s payout is sustainable could be crucial. After all, there is little point in having a high income return if the chances of it being paid are low due to affordability issues.
With that in mind, here are two FTSE 250 shares which seem to offer high and sustainable dividend yields. They could be worth buying right now for the long term.
Ingredients and solutions supplier to the food and drinks business, Tate & Lyle (LSE: TATE), has historically had a volatile bottom line. Due in part to the nature of its business and the impact of commodity prices on its margins, the company’s earnings have rarely offered a smooth, upward trajectory.
However, in the long term, the company could generate strong performance. It seems to have a solid strategy that could help to boost its financial performance, while also ensuring that dividend growth is above inflation in future years.
With a dividend yield of around 5.3% and a dividend coverage ratio of 1.6 times, Tate & Lyle appears to offer a sound income outlook. And with its price-to-earnings (P/E) ratio of 13 being historically low for the company, it could offer upside potential at a time when a number of its index peers may be starting to look overvalued after the FTSE 250’s capital growth of 43% in the last five years.
Also offering a mix of a high income return and low valuation is gaming company William Hill (LSE: WMH). It has been able to put a new strategy in place, which seems to be delivering improved efficiency and overall performance.
Of course, the wider gaming industry faces a relatively uncertain outlook. The company’s shares have been volatile in recent trading sessions due to fears surrounding higher taxes on gambling, as well as possible changes to fixed-odds betting terminals. There are concerns that changes to legislation could lead to reduced profitability across the industry.
While this is a potential risk to investors in William Hill, the company’s valuation appears to factor this in. It has a dividend yield of 4.1% from a shareholder payout that is covered twice by profit. This suggests that its dividend is sustainable, and that there is a margin of safety on offer as a result of its valuation.
Looking ahead, a bid approach for the company would not be a major surprise. It has been the subject of takeover talks in the past, and with the wider gaming industry experiencing a period of consolidation it could be a takeover candidate. Whether this takes place or not, though, the company appears to have a sound strategy, fair valuation and a sustainable high dividend return at the present time.
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Peter Stephens has no position in any of the shares 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.