When it comes to high-yield dividend stocks, UK investors are in a fortunate position. Just look at the FTSE 100 – over 40% of its stocks offer prospective dividend yields of 5% or higher. It’s not that hard to construct a portfolio that pays out a generous income stream.
That said, when investing for dividends, you do have to do your research. A high yield can be a signal the company is in distress and recently we have seen a number of prominent names with high yields, including Vodafone and Centrica, slashing dividends. With that in mind, here’s a look at three high-yielders I like right now.
Legal & General
Financial services group Legal & General (LSE: LGEN) remains one of my favourite FTSE 100 high-yield plays as it ticks a number of boxes from an income investing perspective.
For starters, the stock offers an excellent yield, with last year’s dividend payout of 16.4p per share equating to a yield of 6.7%. Second, dividend coverage (the ratio of earnings to dividends) is solid – it was 1.5x last year – suggesting that there’s little chance of a near-term dividend cut. Third, the company has lifted its dividend payout substantially over the last decade and analysts expect the group to continue lifting its payout in the years ahead, which means higher yields could be on the cards for investors.
Overall, LGEN has all the attributes of an attractive high yielder, in my view. At its current valuation (its P/E ratio is just 7.4), the shares are priced to buy too.
I also like the look of packaging company DS Smith (LSE: SMDS) right now. Its share price has fallen recently on the back of trade war/global growth concerns, and this has pushed its prospective yield up above the magical 5% mark, but the business seems solid.
This is another income stock that has both solid dividend coverage (it had a ratio of 2.1 last year) and a good track record of dividend growth. Over the last five years, the dividend payout has been increased 60% and that is some achievement.
The good news is that looking ahead, analysts expect the group to continue lifting its payout in the near term, even though its dividend growth is likely to be lower than it has been in recent years. With the stock trading on a P/E ratio of just 8.9, I see considerable value here.
St. James’s Place
Finally, check out wealth manager St. James’s Place (LSE: STJ). Its share price has plummeted in recent weeks due to underwhelming half-year results and a number of broker price target downgrades. This has pushed the stock’s trailing yield up to 5.2%.
STJ has a fantastic dividend growth track record, and while the payout wasn’t increased in the most recent half-year results, analysts do expect an increase for the full year. Dividend coverage last year was 1.22 times, which is a little bit low, but not a level to panic about, in my view.
While St. James’s half-year results weren’t as impressive as results of the recent past, I continue to like the long-term story here. Britons continue to need help with retirement planning, and CEO Andrew Croft stated last week that the group is well placed to continue growing. This leads me to believe that STJ should continue to deliver dividends to investors in the years to come.
Edward Sheldon owns shares in Legal & General, St. James's Place, and DS Smith. The Motley Fool UK has recommended DS Smith. 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.