Watching markets whipsaw isn’t much fun. But I don’t think the last few weeks should overly worry those invested for income (assuming they’re adequately diversified).
Of course, some dividend stocks are more worthy of your capital than others. Here are what I believe to be three examples of the former.
In contrast to many companies, online trading giant IG Group (LSE: IGG) benefits from periods of market volatility. This goes some way to explaining why the FTSE 250 constituent’s share price has fared better than most over the last month.
Peers Plus 500 and CMC Markets have already reported an increase in trading. And it looks like IG’s next update on 19 March is likely to contain good news.
You should treat analyst estimates with caution, given many of these will need to be revised. But IG’s stock trades on a little under 16 times earnings as things stand. For a quality operator that only stands to benefit if traders remain active, I think that’s already a reasonable valuation.
Aside from the consistently high returns it generates on the money it ploughs into the business, IG is in fine financial fettle with stacks of cash on the balance sheet.
Dividends hikes may be on hold as it adjusts to the introduction of new regulations to protect retail traders. But IG’s 43.2p per share payout translates to a yield of 6%. That’s worth the risk, in my opinion.
In contrast to discretionary items like cars and mobile phones, demand for low-ticket beverages is unlikely to drop off a cliff, even during recessionary times. This is why I think Robinsons and J2O owner Britvic (LSE: BVIC) is another solid-looking income stock from the FTSE 250.
Britvic’s share price has slipped over the last few weeks. But it certainly hasn’t been as badly hit as others on the market. Again, for what it’s worth, the valuation is also cheap, relative to industry peers. It’s a touch over 13 times expected earnings.
The 3.8% yield is not the highest you can find in the second tier. But it does look to be fully covered by profits (for now). This is more than you can say for the cash payouts of other listed firms. It’s also worth mentioning Britvic has a habit of hiking its dividends every year, indicating confidence on the part of management.
Third on my list of income stocks worth considering if the market sell-off continues is sustainable waste management firm Biffa (LSE: BIFF).
In last week’s trading update, the company simply said it was monitoring the coronavirus outbreak but that there had “not been any meaningful impact” to business so far. That’s exactly what you’d expect from a company operating in a space where demand should remain stable.
It went on to say that trading had been in line with expectations with growth seen in a number of its divisions. A highlight was the “strong performance” in its recycling business as a result of increased demand for recycled plastics.
Aside from its defensive qualities, Biffa looks a decent buy for the income it provides. Following a few years of hikes to the payout, the company is predicted by analysts to return 7.71p per share in the 2019/20 financial year (ending 29 March). That’s a yield of 3%.
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Paul Summers owns shares of IG Group Holdings. The Motley Fool UK owns shares of and has recommended Britvic. 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.