Weak shares prices have thrown up a lot of good dividend stocks with high yields. But will they hold up? Or will they be cut?
Trading updates can give us some clue as to whether to buy now. And we have some big ones coming our way in April. Here are three.
Ashmore
Ashmore Group (LSE: ASHM) is an asset management firm with a focus on emerging markets. So there’s no surprise that in today’s world, with all its global economic shocks, the shares are down 40% in five years.
Still, the fall has driven the forecast dividend yield for 2023 above 7%. And the City thinks it could stay there in the next couple of years.
The dividend has kept going through the recent tough times. That’s because Ashmore has had the capital to do that, and to even out shareholder returns.
The risk for me is that for the next two years, we don’t yet see cover by earnings. That makes me think the cash could come under threat in the years ahead.
We’ll have an update on 17 April. So that should give us an idea of liquidity. There’s risk. But I’m still bullish on the long-term dividend outlook.
Rio Tinto
What can we say about Rio Tinto (LSE: RIO)? Though we had a dividend cut in 2022, the City still expects a yield of 6%-7%.
That’s even with the share price staying strong. In fact, it’s up 45% in five years.
Eyes will surely be on the Rio update on 19 April. It’ll be at 23:30, though. So I guess most of us will wait for morning.
In 2022, Rio saw free cash flow of £9bn. That’s way down on the $17.7bn from 2021, so the dividend cut was no real shock.
But 2022 cash flow was close to the $9.4bn raised in 2020. So it’s a business that varies. It relies on global demand for metals.
That’s gone up and down as the shocks have come and gone around the world.
But I think demand should hold up, especially from China. And I rate Rio as a top income stock, though I do expect volatility.
Dunelm
Dunelm Group (LSE: DNLM) benefited from lockdowns, selling home furnishings online. The shares lost some of their momentum as the world opened up, though.
But they’ve done well, up 110% in five years. And while the price is up, the forecast yield still stands at 7%. But that does include a one-off 40p special.
Ordinary dividends should come in around 3.8%-4%, which still looks good to me.
The price-to-earnings (P/E) ratio is around 15, so the shares might be seen as fully valued now. And they might go nowhere for the rest of the year.
Interim results showed strong numbers across the board, with sales up 5%, even with the Covid boost gone.
A Q3 update is due on 20 April. Inflation and interest rates could hit Dunelm in the second half. But other than that, I see another dividend buy.
