The Centrica share price hit a 22-year low last week, falling to under 75p after the dividend was cut by 58%.
If you missed this story, I’d recommend my colleague G A Chester’s coverage. Today, I’m going to look at three stocks which still offer dividend yields above 6.5%.
All three yield more than Centrica and look like much better buys to me.
A safe 10% yield?
Tobacco stocks can be controversial, but the Imperial Brands (LSE: IMB) share price has risen by 20% from the sub-1,800p levels seen earlier this summer. I believe this recovery is justified, given the group’s stable trading and strong cash generation.
Smoking levels are in decline globally, but Imperial’s core brands are still selling well. Revenues for the firm’s “asset brands” rose by 7% to £2,386m during the first half, accounting for two-thirds of total sales.
Adjusted operating profit for the period fell by 2.3% to £1,620m, but the company says it will slow dividend growth to fund more investment in growth opportunities, such as vaping and — potentially — cannabis.
Imperial continues to generate high levels of surplus cash. I think the shares already reflect a zero-growth outlook, trading on less than eight times earnings and with a yield of almost 10%. I see IMB stock as an income buy.
High street cash machine
The high street is a tough place to make money at the moment, but budget cards and gifts retailer Card Factory (LSE: CARD) appears to be doing a fine job. The company recently reported like-for-like sales growth of 2.3% for the first quarter, with total sales growth of 6.4%.
Analysts’ forecasts suggest that full-year profits should be broadly unchanged from last year. That tells me that investors can buy CARD shares on less than 10 times earnings at the moment.
The company is expected to pay a total dividend of 13.9p per share this year, giving a tempting 8.5% dividend yield. Unusually for such a high yield, this payout looks affordable to me and is not threatened by excess debt.
I admire Card Factory’s high profit margins and strong free cash flow. The shares are on my watch list and I’d be happy to buy at current levels.
A pure income play
Much of my personal investment is focused on high-yield income opportunities. One company whose progress I’ve admired is specialist insurer Phoenix Group (LSE: PHNX).
This firm is basically a life insurance and pensions business, but rather than selling policies directly to customers, it buys closed books of policies from other insurers and runs them to completion.
Phoenix has expanded through making further acquisitions, including last year’s acquisition of Standard Life’s Assurance business. The group has already generated £500m of cost savings by combining the Standard Life business into its operations, highlighting Phoenix’s impressive economies of scale.
Indeed, the group’s main performance metric is the amount of surplus cash it generates each year. Last year the figure was £664m and in 2017 it was £653m. Much of this cash has been returned to shareholders through dividends. The Phoenix share price currently supports a 6.9% dividend yield.
If I didn’t already own shares in two other insurers, Phoenix would be a big part of my portfolio. I continue to rate the shares as a buy.
