Two 6% dividend stocks I’m happy to buy and forget

With a dividend yield of 6.8% at the time of writing, shares in Marston’s (LSE: MARS) look to be the perfect income investment. However, while this market-beating yield might look attractive, it’s sending a warning to investors that the market doesn’t believe the payout is sustainable. Is that the case? 

Robust trading

Over the past 12 months, shares in Marston’s have taken a beating as investors became concerned about the group’s trading outlook. Luckily, as it turns out, rather than Brexit-related issues, Marston’s most significant headwind over the crucial Christmas trading period was the weather. 

According to today’s trading statement, total group sales for the 16-week period to 20 January 2018 rose 4.9% year-on-year, thanks to the expansion of the pub estate. Like-for-like sales, excluding the impact of two snow-affected weeks, rose 1.1%. Including the effects of the adverse weather, like-for-like sales were down 0.9% in the period. The weather’s impact on comp sales was around 2%, on an unadjusted basis, and management expects this to impact profit for the full-year by £1m. 

Still, despite the snow, today’s update notes that Marston’s had a record Christmas Day with total sales across the firm hitting £4m, 5.4% higher than last year. And looking ahead, management is confident that customers will return to its premises while efforts to contain costs will help keep margins stable. 

The payout looks safe 

All in all, despite the decline in Marston’s share price over the past 12 months, it seems as if the underlying business is continuing to grow, which is great news for income investors. 

Over the past five years, the company has generated an average of £43m per year from operations, including acquisitions and disposals, just enough to cover the average dividend distribution of £40m. For the fiscal year ending 30 September 2017, the group spent more than usual on expansion, meaning that is was the first year in five where cash flow didn’t cover dividend costs. This was mainly a result of the £55m acquisition of the Charles Wells Brewing and Beer Company, although, with a 15%+ return on capital expected from this business in the first year, it looks as if the outlay was not wasted and should complement growth in the years ahead. 

Cash-rich 

Another income stock I’m positive about is Stobart (LSE: STOB). With a dividend yield of just under 7%, this infrastructure and support service business could make a great addition to your income portfolio. 

After selling its investment in Eddie Stobart Logistics, the business is now cash rich and debt free. At the end of August, the group’s net cash had risen to £2.9m from a net debt position of £120.7m in the same period last year. A healthy balance sheet should underpin the firm’s dividend policy as earnings continue to grow. 

City analysts are expecting the company to report earnings per share of 37.4p for the 2018 fiscal year, although this includes the proceeds from the disposal. For 2019, a more conservative figure of 7.9p is projected, which is more than double the 3.7p reported for full-year 2017. 

Even though the company is a dividend champion, its shares are slightly expensive based on its earnings outlook. Specifically, according to estimates for 2019, the shares are trading at a P/E of 33, which might be too costly for some income investors.