Up 224% with a 4.2% yield? Here are 1 compelling dividend stocks to consider
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When I first started investing in dividend shares, I was understandably wary. I had been told they were a great way to earn income, but I didn’t know where to start. There were so many companies to choose from – how could I know which ones were reliable?
On top of that, memories of the 2008 financial crisis were still fresh in my mind. How can I be sure I won’t be the victim of the next crash?
Looking back, my only regret is not starting sooner. Sure, I made some bad choices early on but nothing serious. After a few years of patience and dedication, I am finally seeing real results.
How can you replicate this strategy?
To pave your way
The truth is, everyone’s investment journey is different. We all have different financial situations and market conditions change from day to day.
But there are a few tips and tricks that work for everyone. One of them is investing with a stocks and shares ISA. This allows UK residents to invest up to £20,000 per year without paying any tax on the profits.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
But ISA alone will not guarantee success. To improve your chances of earning a steady income, you need a strong portfolio of reliable dividend payers.
Here are a few ways to identify companies with sustainable dividend policies.
Looking away
Popular FTSE 100 stocks like Unilever, National Grid again Legal & General are often rated as some of the most reliable stocks in the UK. But I’ve covered all three in depth, so today I’m looking at a lesser-known company.
As you’ll see, it’s just as impressive as some of those big names and deserves equal consideration.
Anglo-Eastern plants (LSE: AEP) ticks almost all the boxes when it comes to reliable returns: a good yield (4.2%), exceptional cash flow (20 times) and a 34-year payout record.
So there is probably no reason to fear a cut in profits in the short to medium term.
In the last financial year, it has increased its profit by a whopping 58.7% and yet still maintains 62% of its daily operating profit. It has a strong net margin of 20.25% and return on equity (ROE) sits at an adequate 16.5%.
And to top it all off, the stock price has risen 224% in the last 10 years.
So what’s the catch?
Firstly, it is still a small company, with a market capitalization of just £607.7m. Second, it makes palm oil, a questionable product that faces strict environmental regulations. Also, it operates mainly in Indonesia, a region prone to wild weather that can disrupt operations and reduce profits.
So while it’s an excellent example of what to look for in a dividend-paying stock, it’s certainly not without risk.
An important point
When building a portfolio of dividend stocks, it’s important to find balance. A stock like AEP Plantations would make a good addition – as long as a few stable, defensive options are included to reduce risk.
Not yours? Well, each person has their own risk profile. Fortunatley, it’s just one of the many income opportunities I’ve identified recently…
