It’s easy to pick income shares right now. Just look at the biggest yields in the FTSE 100, pick three from different sectors, and buy Rio Tinto, Persimmon, and Imperial Brands. Job done.
Well, that approach might be simple. But it’s not without risks, and it does overlook a whole horde of dividend shares out there that I think are cheap at the moment.
So today, I’m looking at three companies that I rate as having solid long-term income potential. But they don’t figures in lists of biggest yields today.
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Contrarian
My first pick is one that investors have been shunning all year. It’s Royal Mail Group (LSE: RMG), whose share price has fallen by more than 40% over the past 12 months.
The situation described in the company’s Q1 update is not pretty, with group revenue down 5.1%. An adjusted operating loss added to the gloom. Oh, and it looks like we’re in for strike action too, which has further hit the share price.
But what was it Warren Buffett once said? That he tries to be greedy only when others are fearful? Well, all the fear has pushed the forecast dividend yield above 7% now. And analysts have it reaching 8% by 2024.
It might come under pressure, as Royal Mail continues with its transformation plans, and I think we’re looking at a risky buy. But I reckon this could be a good time to lock in some decent long-term income now.
Houses
I can’t look at long-term income shares without considering the building sector. And today my pick is Bellway (LSE: BWY). And look at that last little bit of the chart above — it might even be starting to pick up now.
While the Bellway share price is down, its forecast dividend yield has been pushed up above 5.5% now. And if analysts have it right, it could climb above 6% by 2024.
Cost pressures are mounting on the business, through supply chain difficulties and inflation. But in its June update, Bellway told us that “ongoing positive price momentum continues to offset build cost inflation“.
If we’re in for a prolonged economic downturn, I can see pressure continuing on the whole sector and maybe more share price weakness. But I see strong long-term cash generation, and a chance to nail down some healthy dividends.
Sentiment
With sentiment towards investment managers, I just have to include one today. And it’s Ashmore (LSE: ASHM), whose share price is down 45% in the past 12 months.
Ashmore is under more pressure than some of its peers, as it focuses on emerging markets. During a global economic crisis, that’s not where most people want their money. And it’s seen assets under management falling due to a combination of cash outflows and negative investment performance.
But if they hold up, forecast dividends for 2022 and beyond would yield around 8%. Yes, the dividend could well come under pressure. But even if it’s cut, I see a good chance it will bounce back in the long term. Even with the emerging market risk, I think this could be another income share to tie down now.
