If you have £5,000 to invest today, and you are looking for income stocks to add to your ISA, there’s a whole range of businesses out there that offer dividend yields above the market average.
Today I’m going to highlight three of these opportunities, which all support dividend yields of 5% or more.
My first pick is brick producer Ibstock (LSE: IBST). The design, manufacture and sale of bricks might not seem like a tremendously exciting business, but it is an essential one.
Ibstock manufactures bricks both here in the UK and in the US. It has been using its size and experience to grab market share and boost earnings over the past five years.
Since 2013, net profit has soared from £9.8m to £76m. In 2015 when the company went public, management started the dividend at 4.4p per share, and it has since risen to 16p. Based on current City projections, the stock offers a forward dividend yield of 5.7% and the distribution to investors will be covered 1.3 times earnings per share.
As long as the world’s population continues to expand, and the demand for housing grows with it, the need for bricks will only grow as well. That’s why I reckon Ibstock will remain a great income stock to buy and hold for the next decade.
The second buy-and-forget stock that’s on my radar is Close Brothers Group (LSE: CBG).
Close Brothers is a banking and wealth management specialist. Over the past six years, earnings per share have grown at a compound annual rate of 7% as it has carefully invested profits back into its operations to expand in the markets it knows best. This careful expansion is one of the reasons why the financial services group’s return on equity has averaged 16.6% for the past five years (compared to the industry average of 10%).
If management continues on this course of careful, calculated, growth in the firm’s core markets, I reckon the business will continue to grow for many years to come.
These calculated expansion efforts have also allowed the company to up its dividend steadily. Close Brothers’ dividend per share has increased at an average of 6.1% per year since 2014, and the stock currently supports a dividend yield of 5.1%. The payout is covered twice by earnings per share.
My last pick is the hedge fund group Man (LSE: EMG). It is often said hedge fund owners make more money for themselves than for the investors who entrust them with the management of their money, so if you want to make money, one of the best strategies, in my opinion, is to own a hedge fund. You can do just that with Man.
Man earns money from clients with both regular management fees and performance fees, which can be lumpy. Still, despite this fact, net profit has surged from $72m in 2013 to $273m for 2018. City analysts are expecting further growth to $284m by 2019.
As earnings have surged, management has increased cash returns to shareholders, who are the ultimate owners of the business. This year the City believes the firm will pay out a total of $0.09 per share, giving a dividend yield of 4.7% on the current share price. Further growth is projected for 2020. The yield could hit 5.4% next year based on these current projections.
Right now shares in Man are trading at a forward P/E of 11.1.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Ibstock. 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.