2 Footsie high yield dividend stocks to buy right now

These two companies have the potential to deliver high yields over the long run.

| 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.

With inflation rising to 1.6%, dividends are being squeezed in real terms. Therefore, the potential for a high yield may gradually become more significant to income investors than a high yield today. In other words, a company with fast-growing dividends may become more popular than a company unable to beat inflation when it comes to shareholder payouts.

With that in mind, here are two companies that have the potential to raise dividends at a rapid rate to become high-yielding stocks in the long run.

An improving banking play

Although HSBC (LSE: HSBA) yields a relatively high 5.9% at the present time, its yield could increase significantly over the medium term. A key reason for this is its strategy, which seeks to reduce its cost base and generate significant efficiencies in future years. This is set to boost the bank’s bottom line in the current year and next year, with it forecast to return to profit growth following three consecutive years of a falling bottom line.

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

Growth in earnings of 6% is expected this year, with 7% forecast in 2018. This will mean that the bank’s payout ratio stands at 73% next year, which indicates that dividends could rise at a faster pace than profit. HSBC’s exposure to the rapidly growing Asian economy could mean its profitability rises rapidly, since demand for credit is likely to soar as a more consumer-focused society begins to emerge.

Therefore, despite being one of the highest-yielding FTSE 100 companies around, a more obvious reason to buy HSBC is its potential to deliver higher dividends in future years. And with a price-to-earnings growth (PEG) ratio of 1.8, it seems to be favourably priced too.

A consistent performer

In the last five years, support services company Compass (LSE: CPG) has recorded a rise in its bottom line of 9.3%. Looking ahead to the next two years, further growth of 12.4% per annum is currently forecast. This could enable the company to grow its shareholder payouts by a similar amount – especially since dividends are covered almost twice by profit. This could mean that the company’s yield of 2.4% becomes increasingly enticing over the medium term.

Of course, a yield of 2.4% is less than the FTSE 100’s yield of around 3.6%. However, the reality is that Compass is likely to raise dividends at a double-digit rate over the medium term and should therefore provide a higher income return in the long run than the wider index. In addition to this, the company has a PEG ratio of 1.2, which indicates that a substantial upward re-rating could be on the horizon. As such, its total returns could be ahead of the wider index.

Compass also offers a less volatile shareholder experience than the FTSE 100. For example, it has a beta of 0.6. Given the risk posed by Brexit to the UK economy, reduced volatility could be a useful ally during the course of 2017 and beyond.

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI 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 HSBC Holdings. The Motley Fool UK has recommended HSBC 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

Down 20% over the year, is GSK’s share price a stunning bargain after its Q1 results?

GSK’s share price has fallen significantly in the past 12 months, but this could mean it looks a major bargain…

Read more »

Man thinking about artificial intelligence investing algorithms
Investing Articles

After a very positive trading update, is it time for me to buy this FTSE AI-powered gem?

This FTSE 100 technology star’s recent results were impressive, driving up its share price but is there enough value left…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Is this an unmissable opportunity to buy Berkshire Hathaway shares?

Berkshire Hathaway shares dropped 5% on Monday, 5 May, after Warren Buffett surprised investors, announcing his retirement at the AGM.

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

What’s going on with Standard Chartered shares?

Standard Chartered shares have endured considerable volatility in recent weeks. Dr James Fox takes a closer look at the banking…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

£10,000 invested in Lloyds shares 1 month ago is now worth…

Lloyds shares are increasingly popular among investors, with the stock surging over the past two years. However, volatility has been…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

Here’s why 2025 could be a make or break year for Tesla stock

Tesla stock's still richly valued despite losing almost half its market cap. Dr James Fox explains why it really has…

Read more »

British pound data
Investing Articles

£10,000 invested in Marks and Spencer shares before the cyberattack is now worth…

A hacking group's ransomware attack is hurting Marks and Spencer shares. Here's why investors should now tread cautiously with the…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Should Berkshire Hathaway still be on my list of shares to buy?

As shares in Warren Buffett’s company fall on news of the CEO’s retirement, is this an opportunity to buy or…

Read more »