One of the benefits of market volatility is its ability to depress shares prices, which in the main is due to fear rather than the actual fundamentals of the company.
And while investors need to be selective rather than buy any old junk with a high yield, its at times like this that investors who are prepared to do their research can benefit over the longer term throughbuying fundamentally good companies offering above average, and importantly growing, yields.
Be careful with your eggs
Another important factor that should be at the forefront of investors minds is to ensure that they dont put all of their eggs in one basket. For those that are interested theres plenty of further research in this field, which shows that many inexperienced private investors can underperform the market as a whole by selecting only three or four shares, usually in the same sector. Get the call correct and the outperformance would be significant a concentrated portfolio of housebuilders would have shown significant gains since 2012, however, those holding mining shares would have seen their portfolios slump.
Turning to the chart, we can see that both of the financial stocks,Lloyds (LSE: LLOY) and Legal & General (LSE: LGEN) have underperformed the wider FTSE 100 while Imperial Brands (LSE: IMB) has managed to outperform by some margin, giving some balance to this particular basket of shares.
A lot to like
As the subtitle suggests, theres a lot to like about the shares under review today, both in terms of the dividend yield on offer and the dividend growth.
Starting with the lowest yielding share, Imperial Brands, atfirst glance the shares dont scream cheap trading at around 15 times forecast earnings and yielding over 4%. However, on closer inspection, 15 times earnings isnt overly expensive for a defensive share. And while not to every investors taste, those who have bought into this share have seen the dividend grow at a CAGR (compound annual growth rate) of over 10% since 2010 according to data from Stockopedia, not to mention the near doubling of the share price!
Next up is private investor favourite Lloyds. While maybe not an obvious choice due to the fact that the bank had to cut its dividend during the financial crisis and didntreturn to the dividend list until 2015 with a final dividend for the year to 2014.
However, the dividend grew by 200% for the year to 2015, and analysts expect the dividend to nearly double again for the year to 2016. With such rapid dividend growth and the shares languishing on a forecast PE of under 9 times earnings, the yield on offer is just under 7% due to the current negativity in the sector.
Finally, we have the star of the show, Legal & General. Like Lloyds and other shares in the financial sector, the shares have underperformed over the last 12months. However, investors who were brave enough to hold on since 2010 have seen the dividend more than triple and the share price more than quadruple not bad for a boring insurance company!
The shares currently trade on a forecast PE of just over 10 times earnings and are expected to yield well over 6% making them rather interesting at these prices.
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Dave Sullivan owns shares of Imperial Brands. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
