In what threatens to be an economically-turbulent decade, it’s clear than investors need to do a little more homework before buying income stocks for the 2020s.
Unprecedented social, macroeconomic shocks like Covid-19 and Brexit, allied with rising trade tensions between major nations and the dangers of a ‘Cold War 2:0’, are just some of what share pickers need to take on board before parting with their money.
A proper income hero!
These roadbumps are no reason for investors to pull up the drawbridge entirely, though. There remain many shares that should still thrive in the medium-to-long term. Take Babcock International (LSE: BAB) as an example. This income stock is likely to benefit from thawing relations between the West, and Russia and China, in particular.
Nations all over the globe are focused on defence and so are building their militaries as a result of this ‘new normal.’ Babcock continues to win business, and just last week sealed a contract extension to build 18 more tactical Missile Tube Assemblies as part of the Common Missile Compartment to kit out British and American submarines.
As I suggested, the FTSE 250 company is a particularly good selection for income chasers. It’s a stock that hasn’t so far felt pressured to reduce dividends in the wake of the coronavirus outbreak. It’s not something that City analysts feel it will bow to any time soon either. Consequently Babcock carries a monster yield of 6% for the current financial year (to March 2021). The dial moves to 6.5% for fiscal 2022 too.
Slip a rock-bottom forward price-to-earnings (P/E) ratio of 6 times into the equation too, and I reckon the defence giant offers plenty for value investors to get excited about.
7.5% dividend yields!
ContourGlobal is another great stock for income chasers to buy in today’s uncertain climate, I feel. At current prices it commands dividend yields of 6.8% and 7.5% for 2020 and 2021 respectively.
Monster shareholder payouts aren’t the only reason why this FTSE 250 firm also offers terrific value, however. A forward price-to-earnings (PEG) multiple of 0.1 suggests it’s a bargain relative to its expected profits trajectory.
Firms involved in the generation and transmission of electricity aren’t totally immune to broader economic conditions. But the likes of CountourGlobal tend to perform pretty resolutely thanks to the essential nature of their services. This isn’t the only ace up the company’s sleeve though. Its commitment to creating low-carbon power and its active expansion plan provide plenty for investors to get excited about as well.
ContourGlobal’s strength was illustrated last week when S&P lifted its credit rating to BB from BB-. Among other things, the agency lauded its “strong operating results at most projects” and the power generator’s “financial discipline”. Critically for income investors, it commented on its “strong development pipeline” and added that “we estimate M&A, which should help grow dividend distributions to ContourGlobal from its subsidiaries”. This is a dividend stock I reckon could create mammoth shareholder returns over the next 10 years.