Big dividend yields can be unsustainable. So, I always do my research before buying shares in companies offering an attractive yield.
Some dividend yields look particularly strong right now. This is because markets have been on a downward track over the past week or two.
A number of stocks are down more than 10% over the past fortnight. However, the stated dividend payments have remained fixed.
So, here are two dividend stocks offering near 7% yields that I’d buy for my portfolio.
Aviva
Aviva (LSE:AV) offers an attractive 7.1% dividend yield at today’s price. Part of the reason for this attractive yield is the falling share price. It’s down 27% over the past three months.
In fact, the longer-term trends aren’t great for this insurance and pensions provider. The share price is down 26% over 12 months and 41% over five years.
But I think there are reasons to be optimistic here.
Aviva is a much leaner business than it used to be. And that’s important. I want to buy healthy businesses.
Amanda Blanc was appointed CEO in 2020 and immediate set about making the business more manageable and profitable.
In total, eight non-core businesses have gone. Aviva’s Italian, Turkish and French operations were offloaded for £7.5bn. The business now focuses on core markets in the UK — where it has 18 million customers — Ireland, and Canada.
Currently, Aviva has a price-to-earnings ratio of just 7.2. That’s pretty attractive, but I want to see signs that the business will grow in the future, given the general downward pressure on the share price.
Such growth might be difficult in the current economic climate but, in the long run, I think a leaner Aviva will prosper.
Sainsbury’s
Sainsbury’s (LSE:SBRY) shares are down 21% over the past three months. And that’s one reason we’re seeing a juicy 6.3% dividend yield.
There’s obviously lots of concern right now that inflation and a cost-of-living crisis will see consumers cut back on spending. And that wouldn’t be good for supermarkets, especially during the summer months.
Clearly it’s a concern, but I do feel that rising grocery costs are being slightly exaggerated right now.
However, it is increasing competition between stores in the short term.
Sainsbury’s are keen not to lose customers to the budget supermarket Aldi. Yesterday, the big-four supermarket said it would be price matching 250 products with Aldi.
I actually think some shoppers might feel the pinch more next year. After all, the livestock being reared today are being fed with grain that cost considerably more than in previous years. Fertiliser costs are up massively too. It could be a good time for Brits to drop the meat intake.
So, I do think we’re entering a period of pain for supermarkets. But as a long-term investor, I’m looking at Sainsbury’s as a long-term opportunity.
It’s a very profitable business and has a strong reputation. It’s also the country’s second-largest online grocer. Continued investment in this area is likely to be fruitful.