If youre new to investing, you may believe that steeply rising share prices are the key to building wealth. While this certainly helps, regularly receiving and reinvesting dividends from well-run, resilient companies whose stock appreciates more gradually can be just as profitable over the long term.
So, atthe end of the first week of trading in 2017, heres a selection of businessesfor more risk-averse income hunters who prefer tosearch fordecent yields atthe markets top table.
Dependable dividends
Mondi (LSE: MNDI) enjoyed a positive 2016. Changing hands for 1,223pback in January of last year, shares have since climbed by 35%, leavingthe 8bn cap packaging and paper company offering a yield of just over 3%. This may seem rather average but seasoned dividend hunters will be awarethat consistent dividend growth can be just as good as a sizeable yield. On this front, Mondi scores wellwith a long history of hiking itsbi-annual payouts. I predictthis willcontinue, particularly as the company expects tobenefit from higher selling prices in 2017.
After a fairly depressinglast12 months during which its shares declined by20% investors in ITV (LSE: ITV) will be hoping for a little more joy in 2017. In the meantime, theres a fairlyjuicy 4.2% yield on offer. Thats over 3% higher thanthe rate offered by the best cash ISA currently available.
With decentlevels of return on capital and high operating margins, the 8.2bn capgives the impression of being a quality company, albeit one whose performance istied to the prevailing economic conditions. While concerns over declining revenue from advertising are understandable,the company seems committed to reducing costs and increasing salesfrom its online operations. Those persistent takeover rumours also refuse to go away.
Despite being on the receiving end of last Junes political fallout, shares in 15bn cap insurance and investment management giant Legal &General (LSE: LGEN)have rebounded strongly. Those who embraced the stock in the chaotic few days that followed the shock votewould have enjoyed a50% rise by the end of the year.
Sure,there could be more volatility in the year ahead but history showsthat a company of Legal and Generals stature will be able to weather the storm. While negotiations with the EU continue, theres a chunky 5.8% yield to comfort investors.
Run for cover
Are thereshares offering higher yields in the FTSE 100? Absolutely. So why not select them? Its simple. To distribute dividends to shareholders, a companys finances need to berobust. This is why its so important to refrain from chasing unrealistically high yields (which often signal that a business is in trouble) and to check the level of dividend cover. That means check the ratio of net income over the dividend paid. For payouts to be safe, cover really needs to beas high as possible(and definitelymore than one). With cover of 2.4, 1.9 and 1.5 respectively, the yieldsfrom Mondi, ITV and Legal & General all look secure for now.
As well as stopping themselves from automatically buying the biggest payers, those seeking income should also check that their portfolios nevercontain more than a couple of companies operating in the same market. Only by diversifying both geographically and by industry can investors mitigate the impact of one or several of their holdings reducing or completely cutting their regular distributions.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended ITV. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.