With interest rates set to remain low for a good while yet, dividend yields could become an even more important consideration for investors moving forward.
Bearing that in mind, here are six stocks with 6%+ yields. Are they worth buying right now?
Wm. Morrison
With a yield of 6.7%, Morrisons (LSE: MRW) looks like an ideal income stock. Even with profit sliding, dividends are set to be covered 1.3 times by profit next year, which shows that there remains sufficient headroom for the company to maintain its current level of payout.
Should you invest £1,000 in Direct Line right now?
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Although Morrisons has had a torrid time in recent years, former head of Tesco Sir Terry Leahy recently said that the worst could be over for major supermarkets. That’s because wage growth is due to outstrip inflation next year. With shares in Morrisons trading at well below net asset value, capital gains could be on offer as well as a top notch yield.
Amlin
Shares in Amlin (LSE: AML) current yield a hugely impressive 6.1%. The best bit, though, is that dividends per share are set to rise by 2.8% next year, which is over twice the current rate of inflation and means that Amlin should offer real growth in shareholder payouts.
Although earnings for insurers are generally volatile as a result of the unpredictable nature of claims, Amlin has excellent dividend coverage. Indeed, dividends per share are set to be covered 1.7 times by earnings per share, which shows that even if a catastrophic even occurs, dividends should still be paid. With shares in Amlin having a price to earnings (P/E) ratio of just 9.9, they seem to offer great value right now.
Balfour Beatty
Having fallen by 45% in 2014, shares in Balfour Beatty (LSE: BBY) now yield 6.3%. However, with earnings on the slide, dividends are due to be cut next year and this means that their forward yield is lower at 4.7%.
Certainly, this is still a great yield, but comes with a relatively high degree of risk. Balfour Beatty seems unable to deliver positive earnings growth and has been hit hard in recent years despite the UK economy showing strong signs of life. With earnings set to fall by another 48% in the current year, investors may wish to wait for the company’s bottom line to show some signs of stabilising before being drawn in by a relatively high yield.
Ladbrokes
Trading on a yield of 7.6%, Ladbrokes (LSE: LAD) seems to be the income-seeking investor’s dream. However, with earnings set to fall by 31% over the next two years, shareholder payouts are set to fall over the medium term. This means that next year Ladbrokes’ yield could be 6.8% (assuming a constant share price) and fall further in future years.
Indeed, Ladbrokes has seen profit fall in three of the last five years and, although gaming is a surprisingly defensive industry, it has struggled to compete with lower cost online operators in recent years. As a result, income seekers may wish to look elsewhere for their income ‘fix’.
Friends Life
Formerly called Resolution, Friends Life has seen its share price fall by 8% in 2014. This means that shares in the life insurance company now yield a hugely enticing 6.5%. Furthermore, dividends per share have been remarkably consistent in recent years, which adds to their appeal as an income play.
Certainly, earnings growth is volatile, However, Friends Life is expected to increase its bottom line by 7% next year and, with shares in the company trading on a P/E ratio of 13.2 (versus 14 for the FTSE 100), they seem to offer good value for money, too.
Direct Line
After releasing encouraging results last week, Direct Line (LSE: DLG) seems to be making strong progress. With shares in the insurer currently trading on a P/E ratio of 11.2 and yielding a whopping 8.6%, it looks like a top notch value and income play.
Investors, though, should be aware that a planned dividend cut next year means that shares in Direct Line will yield 7.9% next year, but it means that the company will have sufficient headroom when making its payments to shareholders. With dividend coverage due to be around 1.2 next year, Direct Line seems to be a relatively reliable income play that could be well worth buying right now.
