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These are the companies with the biggest forward dividend yields on the FTSE All Share index.
| Company | Mkt Cap (£m) | Yield % (rolling) | Div Cover (rolling) |
|---|---|---|---|
| NextEnergy Solar Fund | 292.8 | 16.56 | 0.48 |
| abrdn European Logistics Income | 106.3 | 15.93 | 0.62 |
| Lancashire Holdings | 1,508.5 | 14.15 | 1.05 |
| Reach | 173.5 | 13.58 | 3.22 |
| Bluefield Solar Income Fund | 403.8 | 13.12 | 0.35 |
| SDCL Efficiency Income Trust | 559 | 12.88 | 1.12 |
| Foresight Solar Fund | 349 | 12.77 | 1.03 |
| Liontrust Asset Management | 170.1 | 12.68 | 1.2 |
| Ithaca Energy | 2,682.4 | 12.54 | 0.95 |
| Foresight Environmental Infrastructure | 412.1 | 11.91 | 0.91 |
If you find any of these numbers compelling, you may need to take another look.
Only one of these stocks — Reach — appears to offer a sustainable yield. However, on close inspection, Reach is an unusual one. The print media company’s undergoing a transition as revenue and earnings are in decline. From a qualitative perspective, it’s hard to build an investment thesis for this stock.
Remember, a big dividend yield can be a warning sign.
A double-digit payout often reflects a falling share price rather than growing income, and weak dividend cover suggests distributions may be funded by debt or asset sales. Investors should focus on sustainability, balance-sheet strength and cash generation, not headline yield alone.
Screening by coverage
Ok, here’s what happens if we increase the dividend coverage to two times. That means the company’s net income will be at least double the amount it intends to pay to shareholders in the form of dividends. Two times is typically a healthy coverage ratio.
| Company | Mkt Cap (£m) | Yield % (rolling) | Div Cover (rolling) |
|---|---|---|---|
| Reach | 173.5 | 13.58 | 3.22 |
| WPP | 3,546 | 7.83 | 2.44 |
| Card Factory | 241.9 | 7.4 | 2.4 |
| Investec | 4,937.8 | 6.87 | 2.1 |
| TBC Bank (LSE:TBCG) | 2,267.2 | 5.96 | 2.91 |
| Paragon Banking | 1,679.5 | 5.09 | 2.10 |
| International Personal Finance | 489.1 | 5.61 | 2.04 |
| Eurocell | 125.3 | 5.09 | 2.11 |
| Tate & Lyle | 1,673.1 | 5.29 | 2.16 |
| RHI Magnesita NV | 1,279.1 | 5.88 | 2.32 |
While all of these companies would need further exploration before an investment decision’s made, this screen provides a list of stocks that should deliver more sustainable dividend income.
Card Factory’s a really interesting one. The dividend continues to grow, but the stock’s been falling on a profit warning. The company blames poor performance on lower high street footfall, but as Dan Coatsworth at AJ Bell says: “Just as the advent of email and text communication kiboshed sending letters, the writing is also on the wall for sending Christmas cards.”
At five times forward earnings, it might be tempting to take a punt and hope the company improves operationally. But it might take more than just good luck for that to happen.
One I like is TBC Bank. The Georgian bank’s expected to grow sales by around 17% on average over the next two years. Earnings should improve by around 11% annually too.
Trading at 5.1 times forward earnings, with a price-to-earnings-to-growth (PEG) ratio of 0.4, and a dividend yield near 6%, it’s incredibly compelling. It also offers exposure to two of the fastest growing economies in Eurasia (Georgia and Uzbekistan).
However, this does introduce a degree of risk as neither are particularly mature. Neither are good examples of constitutional liberal democracies which investors typically like.
Nonetheless, it’s probably my pick of the bunch. Certainly worth considering.
This story originally appeared on Motley Fool
