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UK share investors have a wealth of options when it comes to choosing income stocks. Stock markets have rallied over the last year, pulling dividend yields lower. But with a little research, it’s possible to find quality shares with attractive yields.
Take Henderson Far East Income (LSE:HFEL), iShares US Equity High Income (LSE:INCU), and Greencoat UK Wind (LSE:UKW). These British dividend shares today carry dividend yields north of 9%.
To give you a flavour of what this could mean for your pocket, a £20,000 investment spread across all three will (if forecasts are accurate) provide a £1,980 passive income this year alone. Want to know what makes them hot stocks to consider?
Strength in depth
Dividends are never, ever guaranteed. So spreading one’s exposure across a wide range of companies, industries, and regions can protect against individual shocks and deliver a steady flow of income over time.
This is why I like the Henderson Far East Income investment trust, which currently yields 10.6%. This pooled vehicle holds £488m of assets spread across 71 companies. These range from banks and telecoms providers, to miners, consumer electronics manufacturers, and carmakers.
Furthermore, these businesses operate all over Asia, reducing the trust’s dependence on one or two countries to drive returns. Key regions include economic powerhouses China, South Korea, and Singapore.
Investing in emerging markets can be volatile at times. But over the long term, Asia has proven a top destination for targeting large profits. I’m confident this can continue as wealth levels and population sizes in this region balloon.
A top ETF
The iShares US Equity High Income fund has the same benefits of diversification. At 9.1%, too, its forward dividend yield is more than three times greater than the FTSE 100 offers.
This exchange-traded fund (ETF) holds an even larger pool of assets than Henderson Far East Income, in fact. Holding 307 different companies, it provides even better protection from individual dividend shocks.
Its aim is “to generate income and capital growth with lower volatility than the broader US equity market“. So it holds a large number of lower-yielding dividend shares than funds that focus purely on income.
That said, this ETF also has significant cash holdings and investments in US government bonds to give its dividend credentials a boost. Its focus on US shares leaves it more regionally exposed than global funds. But on balance, it’s still a top pooled investment vehicle to consider.
Income machine
Greencoat UK Wind is the highest-yielding income stock we’re looking at today. Like many energy producers, it enjoys enormous cash flows it can return to shareholders, resulting in a market-beating yield. Today its forward reading is 10.6%.
But are renewable energy stocks more risk than they’re worth right now? It’s true they’ve fallen in popularity in recent years, reflecting higher interest rates that have driven up borrowing costs and depressed asset values. The cost of building new wind farms has also jumped lately.
Yet companies like Greencoat UK Wind still have excellent investment potential in my view. Their ultra-defensive operations still make them excellent dividend providers. And they’re well placed to grow earnings and shareholder payouts as green energy demand steadily rises.
Companies like this should also benefit in the near term as the Bank of England trims interest rates.
