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Investing in high-yield stocks involves purchasing shares of companies that offer above-average dividend yields. These can provide investors with a regular income stream.
These stocks are typically associated with established and stable companies that generate consistent profits and distribute a significant portion of those profits to shareholders as dividends.
While high-yield stocks can offer attractive income opportunities, they may also carry higher risk due to their sensitivity to economic conditions and interest rate changes.
Therefore, investors should conduct thorough research, diversify their portfolios, and consider their long-term investment goals and risk tolerance when incorporating high-yield stocks into their investment strategy.
So without further ado, here are the picks I’d like to buy (or buy more of).
Legal & General
Legal & General (LSE: LGEN) is among the most attractive high-yield stocks at the moment. The insurer’s 8.7% dividend yield was covered two times by earnings in 2022.
Business performance this year remains strong, suggesting the dividend, and a moderate increase, will remain affordable moving forward.
While interest rates continue to put pressure on stocks, negatively impacting Legal & General’s assets under management, there are several positive tailwinds.
For one, L&G is leading in the growing bulk purchase annuity (BPA) sector. The BPA business is now worth £50bn a year, and with just 15% of programmes transferred to insurers, there’s plenty of room for growth.
Hargreaves Lansdown
The Hargreaves Lansdown (LSE:HL.) dividend yield currently sits at 5.3%, and the forward yield closer to 5.8%. The coverage ratio sits just below two times, suggesting it remains highly affordable.
The brokerage recently announced a set of bumper results on the back on higher net interest income. In fact, income on cash, amounting to £268.7m, more than offset lower trading volumes and fees.
While some investors may be concerned about cheaper competitors stealing market share, that’s yet to have an impact. Hargreaves has a commanding 41.8% share of the market, up from 35.9% in 2015.
Moreover, with interest rates projected to remain elevated and returning trading volumes, I foresee performance remaining strong. It’s worth noting that Hargreaves doesn’t forecast much drop off in net interest income even as rates fall towards 3%.
Enbridge
Enbridge (NYSE:ENB) offers a growing dividend with momentum in its core liquids and gas business. The yield currently sits at 7.7%.
The US-listed firm owns and operates a network of crude oil, natural gas, and natural gas liquids pipelines across North America, and also generates renewable energy.
The company’s business model, which includes stable cash flows from take-or-pay contracts, support dividend health, and has contributed to its rise in recent years. While the energy market is cyclical, Enbridge’s market positioning provides a degree of certainty.
A take-or-pay contract in midstream refers to an agreement where a customer is obligated to either take delivery of a specified quantity of a product or service or pay for it. This is regardless of whether they actually use or consume the full amount.
