One of the most attractive high-yield dividend stocks on the market right now is Direct Line (LSE: DLG). Shares in the insurance group have lost around 30% of their value since the beginning of July.
Investors have been selling for a couple of reasons. Firstly, Direct Line is also set to leave the FTSE 100 at the end of September. As a result, it’s likely fund managers, who are not allowed to hold stocks outside the index, have been selling over the past few weeks. On top of this, Direct Line is also suffering from declining earnings expectations. EPS are set to decline 15% this year, according to City forecasts.
However, despite this downbeat outlook, the stock is still expected to support a dividend yield of 9.7%. On top of this, even after factoring in the earnings decline, shares in this household name are still trading at a highly-attractive multiple of just 10 times forward earnings. In my opinion, the combination of the company’s low valuation and market-beating yield is just too good to pass up.
Risk vs reward
Another high-yield dividend stock that’s also on sale today is iron ore pellet producer Ferrexpo (LSE: FXPO). This is an interesting business. For the past five years, the company has been on a roller-coaster ride of falling profits and scandal. Investors haven’t stayed around to find out what will happen next. They’ve been eager to jump ship, which is why the stock is currently dealing at a forward P/E of just 2.8.
This valuation says quite a lot about Ferrexpo. Investors don’t seem to be happy to take on the risk of investing here. Nevertheless, company stock owners who’ve stayed with it over the past five years have been well rewarded.
Including dividends, the shares have produced a total return of 13% per annum, outperforming the FTSE 100 by a substantial margin of 8% per year. City analysts are expecting more of the same going forward. They’ve pencilled in a dividend yield of 8.7% for the company this year and 8.1% for 2020. This return could be worth the risk of investing in Ferrexpo.
The final company I’m going to profile is real estate investment trust RDI (LSE: RDI). This is another unloved income champion which seems to have fallen out of favour with the market.
Investors have been selling shares in real estate investment trusts with any exposure to commercial property since the Brexit vote in 2016. RDI is no exception. The stock has lost around a third of its value since the beginning of September last year.
The good news is, these declines have taken shares in the business down to a level that looks too good to pass up. It’s currently dealing as a price to tangible book ratio of just 0.5 and a forward P/E ratio of 8.6. On top of this, the shares yield 11%.
These numbers suggest RDI could be worth up to 100% more than its current price when confidence returns to the real estate market. In the meantime, investors can pick up that juicy 11% dividend yield.
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Rupert Hargreaves owns no share 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.