2 dividend heroes with yields over 5% I’d buy now

These two stocks have high dividend yields and here’s why I think they can maintain them.

| 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.

High dividend yields aren’t always a good thing. We all want to chase the highest paying stock, but sometimes that isn’t the best course of action. That’s because struggling companies might boost the yield to attract investors and sometimes the yield is high simply because the share price has fallen due to the company struggling.

So dividend sustainability is key. Can the business afford its dividend or is a cut on the horizon? A company’s recent history will tell you whether the dividend is sustainable and if the stock is worth your money. Here are two I think are worth the price.

Pharmaceutical giant

GlaxoSmithKline (LSE: GSK) is my first pick, with its tempting dividend yield of 5.5%. It is currently priced at around 1,600p with a P/E ratio of around 20, not the best-looking P/E in the world, but I believe that even with its high price it can still reward investors. GlaxoSmithKline has steadily been paying dividend yields of around 5% to 6% for years now, reliably paying around 80p per share year after year. This reassures me that, despite market fluctuations, GSK can still bring in the money.

Such a high dividend could fluctuate, but CFO Iain MacKay has confirmed GSK’s commitment to the yield for this year. And the future? It has many products that are seeing great results with Ellipta respiratory sales climbing 20% and Nucala seeing 40% growth in Q1 this year. The company has three main areas of income that provide a safety net: consumer healthcare, vaccines and pharmaceuticals. Vaccines sales soared in Q1 due to the Shingrix shingles treatment. This vaccine accounted for £365m of sales, up from £110m in Q1 of 2018, which is more than a fifth of all vaccine revenue for the firm. Vaccine sales as a whole were up 23% in Q1. This huge amount of cash flow helps sustain a healthy dividend yield I believe is worth paying a high price for.

Reality show

ITV (LSE: ITV) is my next pick, with its mouthwatering yield of 7.6%. ITV shares are currently priced around 106p with a P/E ratio of 11.9. That ratio is lower than the UK average and the company has reasonable long-term debt levels of £981m with £424m operating cash flow in the last 12 months. This means an operating-cash-to-total-debt ratio of 40%, demonstrating how the debt is significantly covered.

ITV did well in Q1. Despite total national television viewers dropping 3%, its share of these views rose 24%. Registered ITV hub users have also risen by 29% this year, with statistics showing that there’s at least one ITV hub account in every UK household. These figures highlight how the company has an in-depth share of (and insight into) our TV habits. This is important as it plans to launch targeted ads on the hub accounts that should hopefully boost revenue this year, reassuring investors, despite the challenging TV advertising market.

Furthermore, the return of Love Island has also seen a huge boost in viewership, keeping ITV ahead during prime time TV hours. That upcoming launch of ITV hub tailored ads and an admittedly-modest 1% increase in revenues in Q1 shows the company has growth prospects ahead. With ITV stock prices being so low and a healthy dividend, I think that this undervalued investment is far too tempting to ignore. 

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.

fional has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »