Finding the markets best income stocks isnt easy but there are some stocks out there that offer sustainable, higher-than-average dividend yields; you just need to know where to look.
Here are potential candidates.
Well covered
At the top of the list isCentrica (LSE: CNA). Centrica cut its dividend payout earlier this year, but the company has since recovered some composure. After cutting the annual payout to investors by 30%, Centricas dividend payout is now covered1.5times by earnings per share, which makes it safer than most.
Indeed,SSEsdividend payout is only covered 1.2 times by earnings per share, and while National Grids dividend cover also stands at 1.5 times, its dividend yield is only 4.7%, compared with Centricas 5.3%. Whats more, as Centrica is one of the UKs largest utility companies, its unlikely the company will suddenly disappear overnight. Centrica currently trades at a forward P/E of 12.7.
Printingmoney
Next up isDe La Rue plc(LON: DLAR). Just like Centrica, De La Rue has fallen out of favour with the market this year after cutting its dividend payout by around 40%. Nonetheless, now that the companys dividend payout has been reduced to a more sustainablelevel, it looks as if it is here to stay for the foreseeable future.
De La Rues new dividend payout of 25p per share is covered 1.8 times by earnings per share. At present levels, the companys dividend yield is 5.4%. De La Rue currently trades at a forward P/E of 10.4.
The best yield around
Mid-cap telecoms groupKCOM (LSE: KCOM) earns itself a place on this list thanks to the companys highly impressive 6.1% dividend yield. The payout is currently covered 1.5 times by earnings per share and analysts are expecting management to hike the payout by 10% next year.
If City predictions prove true, KCOM is set to yield 6.8% next year and 7.0% during 2017. The company currently trades at a forward P/E of 11.5.
Falling out of favour
Ashmore (LSE: ASHM) is the riskiest pick in this article. The companys shares currently support a dividend yield of 6.2%, but according to City forecasts, next year the company wont be able to cover its dividend payout with earnings from operations. In other words, theres a chance that Ashmore could be forced to slash its dividend payout next year.
City analysts currently expect Ashmores earnings per share to fall 23% next year to 15.5p, just below the companys expected dividend payout of 16.7p per share. Based on these forecasts Ashmore currently trades at a forward P/E of 17.4.
Can it deliver?
Lastly, independent mail groupDX(LSE: DX). DX supports a dividend yield of 7.1% or 6.1p. With earnings per share of 10.85p expected for next year, DXs dividend payout looks safe for the time being, but the market doesnt seem to trust the company.
You see, DX currently trades at a forward P/E of 8.0,which signals to me that investorsare wary of the groups growth. However, only you can decide if the company is suitable for your portfolio.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and KCOM Group. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
