What happens when share prices go down? Thats right, dividend yields go up!
Some forecast yields reach lofty levels simply because investors fear they wont actually happen, and that tough times will force a company to slash the cash. Thats pretty much the reason theyre not rushing to grab their share of a forecast 9.8% from BHP Billiton (LSE: BLT), whose shares have lost half their value in the past 12 months to reach 655p but at least thats better than the 52-week low of 572p touched last week.
Times are tough for miners, sure, and the 77p per share dividend forecast for the year to June 2016 wouldnt be even half covered by earnings. But a commodities recovery simply has to arrive some time, and will BHP tough it out and keep stumping up the cash until that happens?
I wouldnt like to call that, but its surely a tempting punt for those who like a bit of risk, dont you think?
Educational publisher Pearson (LSE: PSON) is another 12-month tragedy as far as share prices go, with a 44% drop to 767p with Octobers Q3 update resulting in a dive than no self-respecting swallow would be ashamed of.
But at least todays price is a good bit above the 52-week low of just 644.5p the shares reached on 20 January, and the low price has boosted the potential dividend yield to be enjoyed by those who invest now. Were looking at a 7% yield based on forecasts for this year, though that would only be covered only around 1.2 times by earnings.
Pearson has a track record of keeping its dividends growing, and I suspect it will try its best not to disappoint on that score but looking at the bigger picture, I think theres a good argument for cutting the dividend a little and using the cash to help debt.
TalkTalk Telekom (LSE: TALK) was hit by a security hack last year and that damaged the share price, but its been heading even further south since then and hit a 52-week low of 184p on 14 January. Since then weve seen a recovery to 204p, but were still looking at a loss of 54% since June 2015.
Whats that done to the dividend yield? Well, were looking at 7.8% predicted for the year to March 2016. That would only be around 75% covered by forecast earnings but TalkTalk has been punching above its weight in dividends for a couple of years now, with last years cash only 60% covered by earnings. And 2017s predicted dividend would actually be covered 1.2 times!
TalkTalk seems committed to its dividend while it works to get its earnings back on track, but I still see it as one for the brave.
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Alan Oscroft has no position in any shares mentioned. 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.