When a high dividend yield is comfortably covered by earnings, it’s a dream come true to me. I like to build my portfolio with high-yielding stocks that can provide a passive and reliable income. But this can be hard to come by as stocks with high dividends often can have underlying issues.
Thankfully, some stocks are offering huge dividends and I believe they’re likely to maintain the yield for years.
Investing in oil
Royal Dutch Shell (LSE: RDSB) may seem like a risky investment as the shares have fallen by nearly 10% in a year. While oil and gas can be a risky investment, it’s unlikely that the industry is going to disappear any time soon, despite the search for more sustainable options.
A redeeming factor is the very tempting 6.6% dividend yield Shell is currently offering. City forecasts also predict that the dividend is more than comfortably covered by earnings. I think that it’s a good idea to invest in Shell while it’s still cheap. Thanks to a weak oil price this year, the stock could potentially be undervalued.
While many investors are sceptical as they believe that oil and gas is a declining industry, I believe that it’ll remain important for decades still to come. Shell’s P/E ratio is a reassuring 11.62 while the industry average is 20-25. This supports the idea that it’s undervalued. The high dividend yield seems to be safe for the time being and the low price makes me very tempted to invest.
Chemical reaction
Johnson Matthey (LSE: JMAT) is a chemical and sustainable technologies company that offers a modest but reliable dividend. What really works in the company’s favour is that it’s considered a leader in the chemicals business. To have such a good reputation in a niche and regulated business is a very strong position to be in.
The dividend yield may only currently stand at 2.66% but this modest approach is actually a great business plan. The dividend is currently covered 2.7 times by earnings per share and it’s remained this way for the last 10 years. So it might not be the highest yield, but it’s practically as safe as it gets. Furthermore, it means that the business is putting more money into growing even more, meaning that the dividend could continue to rise in the future.
I’d consider Johnson Matthey one of the safest stocks to invest in among the FTSE 100 companies. This may be a bold claim but the company’s earnings would have to drop a staggering 50% for the dividend to even be in remote danger. On top of this, the company is expected to see a rise in EPS of over 9% in the current year. I’d be very confident in relying on consistent dividends from Johnson Matthey.