What are the highest-yielding dividend stocks on the London market? Should I buy these shares to add some big income to my investment portfolio?
These are the questions I’m hoping to answer today.
#1: Persimmon’s 12% yield
At the top of my list is FTSE 100 housebuilder Persimmon (LSE: PSN). This popular dividend stock yields 12%, based on a payout that’s been unchanged since 2017 (except during the pandemic).
So far, Persimmon’s dividend has been comfortably covered by its profits each year. Analysts expect this to be true again in 2022. Forecasts suggest earnings of 250p per share, covering the dividend of 235p.
However, there’s an obvious weakness here. What if earnings fall? The latest Halifax House Price Index showed house prices falling by 0.1% in July. Although that’s only a tiny change, it’s the first fall since June 2021.
Faced with the rising cost of living and higher mortgage rates, I think there’s a chance house prices could fall more significantly.
I don’t expect a full-on crash. Indeed, I think Persimmon will continue to trade well. But I think that the group’s profits could fall over the next year or so, increasing the risk of a dividend cut.
#2: Diversified Energy could top 11%
US firm Diversified Energy (LSE: DEC) specialises in buying up old oil and gas wells in states such as West Virginia and Ohio.
According to Diversified’s website, it currently owns around 67,000 wells. The company’s latest production figures show that it produced 136,000 barrels of oil equivalent per day during the first half of 2022.
That’s equivalent to an average just 2 barrels of oil equivalent per day from each of the company’s wells.
Critics of Diversified’s business suggest that old wells may leak methane and will be expensive to decommission. Diversified’s own figures suggest that shutting down all of its wells could cost $1.4bn.
However, chief executive Rusty Hutson says that the market is underestimating Diversified’s ability to generate cash.
While energy prices stay high, I think Diversified’s forecast yield of 10.8% looks safe enough. Indeed, broker forecasts suggest another increase next year that would push the dividend yield above 11%.
Unfortunately, I think the longer-term outlook is more uncertain. In my view, investors need to do their own research before considering an investment in this unusual business.
#3: Will new boss cut Jupiter’s dividend?
Shares in FTSE 250 asset manager Jupiter Fund Management (LSE: JUP) have fallen by 65% since departing chief executive Andrew Formica took charge in March 2019.
This slump has been driven by falling assets under management, as customers have withdrawn their cash from underperforming funds. Jupiter’s assets under management have fallen from £59bn to £49bn since the end of 2020.
As a result, the company’s fee income has also fallen. Jupiter’s forecast earnings no longer cover its dividend.
Broker consensus forecasts suggest that Jupiter’s next CEO, Matthew Beesley, could cut the dividend from 17.1p to 13.1p per share. That would give a yield of 10.8%.
If Jupiter’s performance improves, I think the shares could be good value at this level. But I don’t know how likely this is, so this isn’t a share I’d buy right now.