During the first couple of months of the year, plenty of companies are reporting their full-year financial results for the previous year. The company statements contain lots of interesting (and some not so interesting) facts about how the company performed versus expectations. The statement usually includes a profit and loss account, balance sheet and strategic overview, along with comments from the CEO or Chairman.
When the earnings are released to the market, understandably there can be sharp movements in the share price of the firm. Those with good management usually try to provide forward guidance by quarterly trading updates, so that come the full-year results, there’s not too much of a shock due to any under- or out-performance. However, even with the best will in the world, this can’t always be avoided.
Below are two stocks that pay out generous dividends, have seen plenty of volatility and are about to report earnings. I think they could be good buys ahead of those reports.
Building for the future
Persimmon (LSE: PSN) is a UK-based housebuilder. Having a domestic focus has hampered it since Brexit due to the uncertainty that has weighed heavily on the UK. The evidence of this was seen when a potential breakthrough came on the horizon with the Conservative election win in the December general election. The share price has increased 29% since then.
On a dividend yield front, investors can expect a 7.13% yield at current prices, making it one of the highest in the FTSE 100 (which has an average yield of 4.37%).
Next Tuesday we’re expecting the full-year results for 2019, which potentially could highlight a slowdown from Brexit uncertainty. In the half-year results that were released in August, profit was down slightly to £509m from £516m, although this was put down to additional spending on customer service.
Even if results are poor next week, the high dividend yield makes this a good buy-and-hold in my opinion, with a yield that will only increase should we see a short-term share price correction.
Iron sharpens iron
Rio Tinto (LSE: RIO) has given dividend investors a roller coaster ride of emotions over the past five years, yet it has still managed to provide not only dividend income but share price appreciation of almost 23%. Despite this, the dividend yield remains about 6%, again making it one of the highest within the FTSE 100 index.
Earnings for 2019 are expected next Wednesday, coming after half-year results in August that showed the largest profit since 2014, and easily beating 2018 ($4.93bn vs $4.42bn). This was largely due to high iron ore prices, which account for 50% of the firm’s revenue and a staggering 70% of earnings.
Looking forward, I expect strong full-year results, so dividend investors already picking up income could be rewarded with further capital appreciation from a rising share price. Any such rise would reduce the dividend yield for new investors, therefore allocating some funds before the announcement could be a smart move, if you agree with my viewpoint.
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Jonathan Smith and The Motley Fool UK have 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.