Is this the best income stock to buy this month?

This income stock is an anomaly — it pays higher income, and more regularly, than most bonds in the market. Here’s why it’s in my eye line.

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.

Young Black woman using a debit card at an ATM to withdraw money

Image source: Getty Images

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.

Henderson Far East Income Limited (LSE:HFEL) is an income stock that does exactly what it says on the tin. The investment trust has been around since 2007. It has increased its dividend every year to investors since then.

Dividend heroes are stocks that pay investors a growing income for 25 consecutive years or more. These stocks are rare like loyal friends to income investors like me. I literally view them as heroic. Henderson Far East Income is not very far away from achieving this milestone.

By the way, this income stock doesn’t merely increase dividends year on year – at some points it pays the highest income in the market. At a point last year, the dividend yield was at 10% -– incredible. That type of inflation-beating real return was virtually unmatched last year.

Currently, the trust is yielding a super-high 8.3% compared to the FTSE All Share yields of 3.46%. I get the feeling this company likes paying its long-term investors.

Positive macro tailwinds

The income stock targets companies with high and sustainable dividends in the Asia Pacific region. This is a positive tailwind, according to its portfolio manager, Mike Kerley. He believes inflation will be more subdued in Asia compared to the inflation pressures in the West. I have also noted that the OECD has the most bullish growth forecasts regarding the Asia (ex-Japan) region.

There are drawbacks, however. A big risk for me is the fact the East Asia hasn’t historically been a great source of cash flows. Even the trust’s portfolio manager sounded more hopeful than expectant regarding the dividend growth potential. He also conceded that the markets were already at relative highs.

A more concerning factor for me is the downtrend in the trust’s asset value over the past five years. The stock has shed 20% of its assets. No wonder the dividends have been so high. I am focused on income so this is not the worst news. But could this capital downtrend continue?

Income stock qualities  

I view Henderson Fast East as an income stock, or income-focused fund. I think it can pay me a growing income throughout the years, regardless of performance. For example, the net asset value of the trust declined in the double digits last year. Despite this, the trust still increased its annual dividend pay out to investors.

Naturally I would suspect the trust of dipping into reserves – an unsustainable move in the long term. But it is not the case as the trust has sufficient dividend cover (enough earnings to cover the income it pays investors).

Diverse exposure

Just because I see an investment company is higher yielding than another does not make it a better long-term investment.

But Henderson Fast East Income is a highly suitable investment for me for several reasons. It offers me the emerging market exposure my portfolio is badly missing.

My portfolio has an increasing emphasis on income and where better for me to look. The income stock has raised its dividend annually for the last 15 years and currently offers a market-leading dividend. On top of that, it delivers investment returns with a low correlation to the wider blue-chip markets.

If I buy income stock, Henderson Far East Income is at the front of the queue.

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.

Henry Adefope has no position in any of the shares mentioned. 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »