With the FTSE 100 having a dividend yield of almost 4%, many investors may question whether a higher yield is really necessary at the present time. After all, inflation has fallen in recent months, which means that need may have fallen to some degree.
However, high-yield shares such as Standard Life Aberdeen (LSE: SLA) could offer relatively high total returns in the long run. Alongside a dirt-cheap dividend stock which released an investor update on Tuesday, it could be worth buying right now.
As is often the case with a major merger, Standard Life Aberdeen’s combination has not gone as smoothly as many investors had expected. It’s due to post a fall in earnings of 13% in the current year, with the company experiencing lost clients and falling investor sentiment. As a result, its share price has dropped by 28% in the last year. This compares to a 3% rise for the FTSE 100 during the same time period.
However, following its fall in value, the stock now offers a more appealing investment opportunity. It’s expected to quickly recover from a tough 2018, with its bottom line forecast to rise by 6% next year. And with it trading on a price-to-earnings (P/E) ratio of around 13, it appears to offer a wide margin of safety.
Additionally, Standard Life Aberdeen currently has a dividend yield of over 7%. There are few shares in the FTSE 100 with higher yields at the present time. And with its business model seemingly sound and there being growth potential across the world economy, now could be the perfect time to buy it. It may experience further volatility over the near term due to its changing structure, but in the long run it could be a top income share.
Also offering impressive dividend investing potential is housebuilding, regeneration and construction company Galliford Try (LSE: GFRD). It reported a positive update on Tuesday following progress made in the most recent financial year. It continues to move ahead with its growth plans to 2021 across all three of its businesses.
Linden Homes has been able to perform in line with expectations, with it entering the new financial year having sales exchanged and reserved of £366m. Similarly, the company’s Construction segment has recorded a solid underlying performance, while Partnerships & Regeneration has a strong order book and is making good progress against its growth and margin targets.
With Galliford Try having a P/E ratio of around 7, it seems to offer a wide margin of safety. Although its bottom line is due to fall by 2% this year, dividends are expected to remain covered twice by profit. And since the stock has a dividend yield that’s in excess of 8%, it could prove to be a sound income investment for the long term.
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Peter Stephens owns shares of Standard Life Aberdeen. The Motley Fool UK has recommended Standard Life Aberdeen. 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.