Grab These 3 Stunning Yields While You Can! National Grid plc (4.8%), Imperial Brands PLC (4.2%) And Aberdeen Asset Management plc (7%)

These 3 shares have superb income potential: National Grid plc (LON: NG), Imperial Brands PLC (LON: IMB) and Aberdeen Asset Management plc (LON: ADN).

| 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.

When it comes to reliable dividends, one of the most appealing sectors is tobacco. That’s because it has a highly defensive earnings profile, which means that sales and profitability are stable and resilient even during the most challenging economic circumstances.

Moreover, with demand for cigarettes being relatively price-inelastic, companies such as Imperial Brands (LSE: IMB) enjoy huge pricing potential. This provides investors with the prospect of mid-to-high-single-digit earnings growth over a sustained period. For example, Imperial is due to increase its bottom line by 12% this year and by a further 6% next year. This should allow it to raise dividends by 10.2% in the current financial year and by an additional 9.8% next year.

This means that Imperial will yield 4.2% this year and with it being a mature business operating in a mature industry, it doesn’t require a high dividend coverage ratio. That’s because its earnings are stable and capital expenditure requirements aren’t relatively high. As such, Imperial is likely to raise dividends at a faster rate than earnings over the medium term, since it has a dividend coverage ratio of 1.5. This is relatively high for a tobacco company, which could equate to rapidly rising shareholder payouts moving forward.

Should you invest £1,000 in Imperial Brands 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 Imperial Brands made the list?

See the 6 stocks

Power player

Also offering excellent income prospects is National Grid (LSE: NG). Like Imperial, it’s a highly defensive stock that’s likely to raise dividends by at least as much as inflation over the long run. For example, in the last five years they’ve increased by 3.8% per annum and this means that National Grid now yields 4.8%, which is around 20% higher than the yield of the wider index.

Looking ahead, National Grid could deliver a share price rise due to its appealing valuation. While many of its utility sector peers suffer from elevated political risk due to customer complaints regarding the cost of domestic energy, National Grid offers lower risk and trades on a price-to-earnings (P/E) ratio that indicates upward rerating potential. For example, it has a P/E ratio of 15.3 and given its income prospects and defensive characteristics, this could easily move higher over the coming months and years.

Risks vs rewards

Meanwhile, Aberdeen Asset Management’s (LSE: AND) yield dwarfs those of National Grid and Imperial, with it yielding 7% at the present time. A key reason for this is the poor performance of the asset manager’s shares recently, with them falling by 9% in the last three months as investor sentiment towards China-focused stocks has plummeted. And with Aberdeen’s earnings set to fall by 34% in the current financial year, it’s little surprise that investor sentiment has deteriorated.

Although Aberdeen has a high yield, it’s not well covered by profit. For example, in the current year Aberdeen’s dividend payments are expected to be covered just 1.04 times by profit, which is arguably unsustainable in the long run. However, with profit due to grow next year by 4% and the company having a bright long-term outlook due to the potential for the Asian economy to grow, Aberdeen may not be required to slash dividends.

Therefore, while riskier than Imperial and National Grid, Aberdeen could still prove to be a sound income buy for the long haul.

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.

Peter Stephens owns shares of Aberdeen Asset Management, Imperial Brands and National Grid. The Motley Fool UK has recommended Aberdeen Asset Management. 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

Could the S&P 500 be heading for an almighty crash?

Christopher Ruane shares his take on why he thinks the S&P 500 could be heading for a big fall at…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Down 64%, this FTSE 250 stock offers a 13% dividend yield for investors

This struggling investment banker has suffered significant losses in the past five years, but it has the second-highest yield on…

Read more »

Investing Articles

1 stock market ETF I’ve been buying during the sell-off

The stock market's been all over the place in April, creating a fertile breeding ground for long-term buying opportunities.

Read more »

Investing Articles

As the Sainsbury share price bucks the price-war trend on FY results, I examine the dividend prospects

The J Sainsbury share price has been regaining ground, despite growing fears of intense competition in the supermarket sector.

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

Should I invest in a Stocks and Shares ISA or a SIPP to retire early?

Early retirement is the ultimate goal for many investors, but choosing between a Stocks and Shares ISA and a pension…

Read more »

Investing Articles

Is now a great time to consider buying Greggs shares?

Greggs shares have been hammered in 2025. But have they now fallen too far? Paul Summers takes another look at…

Read more »

Investing Articles

Is it still a great time to buy cheap shares as stock market crash fears recede?

Fear of a stock market crash can trigger panic selling... but that surely can't be the best thing to do…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

The Vodafone share price is 24% undervalued, according to analysts

Our writer’s been looking at the latest targets for the Vodafone share price. Although there’s a wide variation, the average…

Read more »