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UK share investors have many options when it comes to choosing income shares. Stock markets have rallied over the past year, making dividend yields lower. But with a little research, it is possible to find quality stocks with good yields.
Take it Henderson Far East Income (LSE:HFEL), iShares US Equity High Income (LSE:INCU), and Greencoat UK Wind (LSE:UK). These British dividend stocks today have a dividend yield north of 9%.
To give you a taste of what this could mean for your pocketbook, a £20,000 investment spread across all three will (if forecasts are correct) provide an income of £1,980 this year alone. Want to know what makes them hot stocks to consider?
Strength in depth
Assignments are never guaranteed. So spreading one’s exposure across multiple companies, industries, and regions can protect against individual shocks and deliver a steady income stream over time.
That’s why I like the Henderson Far East Income trust, which currently yields 10.6%. The combined vehicle holds £488m of assets spread across 71 companies. These range from banks and telephone providers, to miners, consumer electronics manufacturers, and car makers.
In addition, these businesses operate across Asia, reducing the trust’s reliance on one or two countries to drive returns. Key regions include economic powerhouses China, South Korea, and Singapore.
Investing in emerging markets can be volatile at times. But in the long run, Asia has proven a top destination for big profits. I hope this can continue as the levels of wealth and population size in this region balloon.
The highest value of ETFs
The iShares US Equity High Income fund has similar diversification benefits. At 9.1%, too, its previous dividend yield is higher three times greater than FTSE 100 specials.
This exchange-traded fund (ETF) holds a larger portfolio of assets than Henderson Far East Income, in fact. It holds 307 different companies, providing the best protection against individual stock shocks.
Its purpose is to “generating income and capital growth with lower volatility than the broader US equity marketIt therefore has a greater number of low-yielding stocks than funds that only focus on income.
That said, this ETF also has equities and investments in US government bonds to power its equity credentials. Its focus on US stocks leaves it more exposed to regional rather than global currencies. But on balance, it’s still a great investment vehicle to consider.
An income machine
Greencoat UK Wind is the most profitable stock to watch today. Like many energy producers, it enjoys a very large cash flow that can be returned to shareholders, resulting in a return that exceeds the market. Today its forward reading is 10.6%.
But are renewable energy stocks more risky than they are right now? It is true that they have declined in popularity in recent years, reflecting high interest rates that have raised borrowing costs and depressed asset prices. The cost of building new wind farms has also increased recently.
However companies like Greencoat UK Wind still have very good investment potential in my view. Their high defensive performance still makes them excellent stock providers. And they are well-positioned to boost earnings and shareholder payouts as demand for green energy steadily increases.
Companies like this should also benefit in the near term as the Bank of England cuts interest rates.
