I’ve recently been scouring the market for British stocks with high dividend yields to add to my portfolio. And I’ve come across three companies that meet my rigorous criteria for income shares.
The first corporation is the defence group BAE Systems (LSE: BA). What I like about this business is that it’s a relatively defensive enterprise. It’s the biggest defence contractor for the UK government, which gives it a large, stable customer.
At the same time, BAE owns a broad portfolio of intellectual property, which gives it a competitive advantage against other defence contractors around the world.
I think these defensive qualities suggest the business will be able to produce a high level of profit year after year. This should support its dividend.
At the time of writing, the stock supports a dividend yield of 4.6% and trades at a price-to-earnings (P/E) multiple of 11. Based on these metrics, I’d buy the equity for my portfolio today.
As a defence contractor, there’s a multitude of risks facing BAE. These include the potential for actions against the company if it has supplied weapons to sanctioned organisations. It may also suffer in a trade war between the UK and other nations.
Another company I’d buy for my portfolio of British income stocks is asset management group Ninety One (LSE: N91). At the time of writing, this stock supports a dividend yield of 5.7%.
The company’s benefited from rising stock markets. According to its latest trading update, last year, the group registered an increase in assets under management of 27% to £131bn. Thanks to this growth, pre-tax profit increased 3% to £204.1m and adjusted operating profit increased 9% to £206.2m.
I think this profit growth should support the company’s dividend yield. Moreover, if the economic recovery continues to drive stock markets higher, Ninety One’s assets under management, and profits, may continue to grow. Based on this outlook, I’d buy the stock today.
On the other side of the equation, if stock markets suddenly lurch lower, Ninety One’s assets under management could decline. This may lead to reduced profitability and, in the worst-case scenario, a dividend cut.
The final high-yield company I would buy for my portfolio of British stocks is the FTSE 100 income champion National Grid (LSE: NG).
National Grid owns and operates the electricity infrastructure across England which, in my opinion, is a massive defensive advantage. Replicating this network would be nearly impossible. Therefore, the company has a virtual monopoly.
Unfortunately, it can’t charge whatever it wants for consumers and suppliers to use this network. It’s heavily regulated. This means National Grid’s profitability is limited. And if regulators decide to take a hard line with the business, the dividend could come under pressure.
Still, compared to many other British stocks, the company has an incredibly stable income stream which shouldn’t disappear anytime soon.
At present, the stock offers a forecast dividend yield of 5.5%, which is significantly above the market average. It also trades at a forward P/E of 15.6, which is a bit on the pricey side. Nonetheless, it’s a price I’m willing to pay for a company with such an established monopoly.
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Rupert Hargreaves has no position in any of the shares 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.