Yielding 8%+, Are These The Best Income Stocks Around? Game Digital PLC, Direct Line Insurance Group PLC & GVC Holdings PLC

How safe are dividends at Game Digital PLC (LON: GMD), Direct Line Insurance Group PLC (LON: DLG) and GVC Holdings PLC (LON: GVC)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Regular income from dividends can revolutionise a portfolio. They can provide income when the stock market is falling or add the icing on the cake when it’s hitting a new high.

However, trying to find dividend yields that are both above-average and sustainable is difficult. For example, Game Digital (LSE: GMD), Direct Line (LSE: DLG) and GVC Holdings (LSE: GVC) all support dividend yields of more than 8%. But the question is, are these payouts sustainable?

Heading for a cut 

With a dividend yield of 13%, Game Digital’s shares support one of the best yields on the market. That said, the current payout is only covered 1.3 times by earnings per share and City analysts expect the dividend to be cut by around 40% this year. This forecast is based on the fact that Game’s sales are sliding, and during December the company warned that first-half profits would be around a third lower than the same period last year.

Should you invest £1,000 in Osb Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Osb Group made the list?

See the 6 stocks

With this being the case, it’s clear that investors shouldn’t rely on Game’s current dividend yield of 13%. Nonetheless, even if the payout is cut by 40%, this will still leave Game’s shares yielding 7.4%. 

A special dividend on the cards?

For the year ending 31 December 2015, Direct Line is set to return 41.5p per share to investors for a dividend yield of 10.7% according to City analysts. Part of this cash return followed the company’s sale of its international insurance arm. Management decided to return the extra cash from this deal to investors by a special dividend. And there’s reason to believe that another hefty special dividend could be on the cards for Direct Line’s shareholders this year.

Specifically, management has stated that it will consider returning excess capital to shareholders when it reports full-year results for 2015 on 1 March. Direct Line has a cash-rich balance sheet and the insurer’s risk-based capital coverage ratio was 155.9% at the end of June. Management is targeting a coverage ratio of 125% to 150%. Anything above that level can be considered to be excess capital, which could be returned to shareholders. Excluding any special payouts, Direct Line’s regular dividend yield is forecast at 5% for this year.

Acquisition to boost profits

Finally GVC Holdings, the controversial gaming company that likes to pay out most of its profits to shareholders. GVC’s five-year average dividend yield is around 10%. However, City analysts expect the company to slash its dividend payout by more than 50% this year following a 23% fall in earnings per share. This lower earnings per share figure is largely to do with the higher number of shares in issue following GVC’s takeover of Bwin.party last year. The lower payout will also mean that the payout cover will increase from 1.3 to 2.3 times.

Over the long term however, this deal should only boost GVC’s earnings. City analysts are forecasting pre-tax profit growth of 100% for the enlarged group this year and the company’s dividend payout ratio should return to its previous level after the two gaming companies have completed their integration.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »