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.

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.

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

Young black woman using a mobile phone in a transport facility
Investing For Beginners

Down 34% in a month, is this FTSE 100 stock going to be demoted?

Jon Smith flags a FTSE 100 company with a recent poor performance he believes could see it soon drop out…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is the Diageo share price set to make a stellar comeback in 2025?

Harvey Jones thought the Diageo share price looked good value when he bought it after last year's profit warning, but…

Read more »

Investing For Beginners

It’s down 50%. Would it be madness for me to buy this value stock?

Jon Smith notes down a household value stock in the FTSE 250 that he thinks can rally in the long…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 70% and 80%! I’m thrilled I bought these two red-hot UK stocks exactly 1 year ago

Harvey Jones bought two UK stocks at the end of November last year, and both have smashed the market in…

Read more »

Investing Articles

These FTSE 100 shares could soar over the next year

FTSE 100 shares show strong potential as rate cuts loom. History shows stocks could gain more than 70% in the…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

“If I’d put £5,000 into Santander shares just 2 years ago, here’s what I’d have now”

Our writer considers whether he thinks Santander shares still look good value after a strong period for the global Spanish…

Read more »

Illustration of flames over a black background
Investing Articles

Could this FTSE 250 stock be the next Rolls-Royce?

With an ongoing probe into the motor finance industry, the share price of this member of the FTSE 250 has…

Read more »

Investing Articles

My 3 favourite FTSE dividend stocks give me a mind-blowing 9.82% yield!

Harvey Jones is surprised to learn that he owns the three highest-yielding dividend stocks on the FTSE 100. So is…

Read more »