Today I’m going to look at three dividend stocks with yields over 9%. These are three of the highest yielders on the UK market, so I’ll want to make sure these payouts are sustainable.
However, with inflation high and interest rates rising, I’m keen to maximise the income from my portfolio. Although dividends are no substitute for cash savings, they do provide me with a useful passive income that I can reinvest in shares or even withdraw if I need to.
A five-star 11% yield?
FTSE 100 housebuilder Persimmon (LSE: PSN) has just announced its first five-star HBF customer satisfaction rating in its history. This suggests to me that the changes made by chief executive Dean Finch to improve build quality are working.
Like most of its rivals, Persimmon says that demand for new homes is still strong. Average sale prices are up by 2% so far this year. The company expects to build 4%-7% more houses in 2022 than it did in 2021.
For me, the big uncertainty is whether the UK economy – and housing market – are about to slow down. That could put pressure on Persimmon’s profits.
However, I think that Persimmon’s £2.8bn order book and debt-free balance sheet should provide some defence against this risk.
The company plans to pay a total dividend of 235p per share in 2022, giving a forecast yield of 11%. Based on what we know today, this payout looks fairly safe to me.
A contrarian buy?
Fund manager Jupiter Fund Management (LSE: JUP) ended last year strongly, with management fees up 18% and record assets under management of £60.5bn.
Unfortunately, conditions have been tougher so far this year. Jupiter’s assets under management fell back to £55.3bn during the first quarter, as share prices slumped and clients withdrew money.
Fund managers tend to suffer in market downturns, when investors tend to withdraw cash. There’s obviously a risk that market conditions could get worse. However, as a Foolish investor, I believe in staying invested, rather than trying to time the market.
Jupiter’s share price has fallen by 30% over the last year, but the company still generated a 31% profit margin last year and expects to return to profit growth in 2023. This year’s forecast yield of 9.7% should be covered by earnings.
I’d be happy to add Jupiter shares to my portfolio today.
A dividend stock I bought earlier
One 9% yielder I already own is Direct Line Insurance Group (LSE: DLG). Shares in this motor and home insurance specialist fell last week after the company said premiums were not keeping up with rising claims costs.
New UK rules banning insurers from offering new customers cheaper rates than renewal customers have also come into effect this year. But Direct Line says the impact of these is as expected, with higher premiums and less customer switching.
That seems positive to me. I’m also encouraged by recent technology investment in a new pricing platform. Direct Line CEO Penny James expects this to improve profit margins, which are already quite healthy.
Eventually, I expect insurance premiums to rise to reflect inflation. In the meantime, broker forecasts suggest Direct Line’s profits should be flat this year, supporting a 23.7p per share dividend payout.
Based on these estimates, Direct Line shares could yield 9.9% at current levels.
