I see a lot of cheap income shares out there now, with healthy-looking dividend prospects. Share price weakness pushes up dividend yields. And buying when the valuation is low can lock in higher long-term income.
I’m looking at three today, all of which I think look good value for income investors like me. And we’ll have interim updates from all of them during the month. Will good news help turn around their share price weakness?
Construction
First is Morgan Sindall (LSE: MGNS), with first half results due on 4 August. Morgan Sindall is one of the UK’s biggest construction groups, active in everything from affordable housing to infrastructure projects.
The shares put in a bit of a recovery in 2021, but they’ve gone off the boil a bit so far this year. And I think that leaves the stock on an attractive forward valuation. We’re looking at a forecast price-to-earnings (P/E) ratio of only a bit over nine, and dropping.
The forecast dividend yield is around 5% and rising. That’s not one of the biggest yields around, but it has one key characteristic that I like. The 2021 dividend was covered almost two and a half times by earnings.
That boosts my confidence that dividends, heavily cut for the pandemic year of 2019, could be in for a sustainable progressive run now.
Investment
The whole asset and investment management business has tanked of late, suffering cash outflow as investors shift their money elsewhere. To my mind, that’s left Abrdn (LSE: ABDN) looking cheap, after a share price fall of close to 50% over the past 12 months.
The drop has pushed the forecast Abrdn dividend yield up to a whopping 9%. There must be fears that such a high level might not be sustainable, especially with our current economic outlook.
But on 6 July, the company announced a new £300m share buyback to return surplus capital to shareholders. The first phase, of up to £150m, has already commenced. Yes, there are risks. But I see this as a vote of confidence in the company’s ability to deliver long-term income.
First-half results are due on 8 August.
Insurance
Moving to 22 August, we should know how the first half went for Phoenix Group Holdings (LSE: PHNX).
As an insurer, Phoenix is a little difference to most. It acquires legacy life insurance and pension assets that are closed to new business, and makes its money from managing them. It currently owns brands that include Standard Life and SunLife.
Phoenix has been generating strong cash from this business, and delivering progressive dividends. And after a weak year for the share price, forecasts now suggest a yield in excess of 8% this year, rising further after that.
Risks
All of these come with the risk that they’re in sectors likely to suffer more during an economic downturn than most. And I think share price weakness could continue in the second half of 2022.
And if August’s updates show any sign of dividend weakness, we could see dips. But, right now, I like the look of these as long-term income investments.
