Dividend stocks: Two 5%+ yielders that I’m considering right now

Is this big FTSE 100 faller poised for a strong recovery?

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Budget airline easyJet (LSE: EZJ) looks set to be demoted from the FTSE 100 into the mid-cap FTSE 250 later this week. The easyJet share price has fallen by about 50% over the last year as the orange-topped flyer has reported falling profits and tough market conditions. Today I want to ask if now is the right time to buy it.

Oversold and unloved

Buying good quality companies after they’re demoted to the FTSE 250 can be a profitable strategy. This move tends to result in a lot of forced selling by FTSE 100 tracker funds and other institutional investors that are only allowed to own FTSE 100 stocks.

As a result, the stock can become oversold, leaving the share price artificially depressed and poised for a strong recovery. 

Are bigger problems ahead?

For a cyclical sector such as airlines, peaks and troughs in profits (and share prices) are to be expected. Right now, most airlines are struggling with a sharp rise in fuel costs due to higher oil prices.

In addition to this, I think there’s also some risk of excess capacity on some European short-haul routes after years of continued expansion. This could keep fares low despite rising costs.

The City has certainly turned cautious on easyJet. Brokers’ consensus forecasts for profits in 2019 and 2020 have been cut by about 20% over the last three months.

Buy now or wait?

Although easyJet is facing tougher trading conditions, I don’t see any reason to think that the business has any fundamental problems.

What’s not yet clear to me is how much worse market conditions are likely to become. Is the current share price a world-class buying opportunity? I’m not sure it is.

The firm’s dividend policy suggests a dividend cut is likely this year and the shares are still trading on nearly 10 times forecast earnings. I plan to watch and wait a little longer before taking another look at easyJet shares.

An overlooked opportunity?

One company I’ve admired for a while is German commercial property group Sirius Real Estate (LSE: SRE). This £650m company owns and operates business parks across Germany. Its approach is to buy, improve and sometimes sell property in order to realise capital gains as well as rental income.

It’s a strategy that’s worked well in recent years. Figures released today show that the firm’s net asset value rose by 12.6% to €0.71 per share last year. Strong growth in Sirius’s rent roll meant that funds from operations — a proxy for cash generation — rose by 26% to €48.4m.

Shareholders will receive a dividend of 3.36 eurocents per share for 2018/19 — a 6.3% increase on the previous year.

A change of focus?

Chief executive Andrew Coombs expects to continue delivering growth thanks to recent acquisitions and a new joint venture with insurance giant AXA.

However, one thing that caught my eye about today’s figures was Mr Coombs’ comment that having hit £1bn in assets, the company would now focus its efforts on cash generation.

Is this a subtle message that market conditions might be changing in Germany? I’m not sure.

However, with the shares offering a forecast yield of 5.3% for 2019/20, I see this stock as a good way of diversifying away from UK property. I’d be happy to buy and hold these shares, topping up during any future market downturns.

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.

Roland Head 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.

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