Hunting for a quality income stock when equity markets are trading near all-time highs can feel like a challenging task. Yet some of the most generous yielders on the London Stock Exchange are still trading at attractive levels, and some professional analysts are taking notice.
Here are two that deserve a closer look in May, according to the pros.
1. Chesnara: 21 years of rising dividends
Chesnara (LSE:CSN) is a specialist life assurance business that acquires and manages closed life insurance and pension books across the UK, Sweden, and the Netherlands.
It isn’t a flashy business. But boring can be lucrative when it comes to income investing.
The model’s remarkably straightforward. Chesnara buys legacy life insurance portfolios that larger insurers no longer want to run, extracts the cash flows embedded within them, and returns that capital to shareholders. The result? Twenty-one consecutive years of rising dividends that have paved the way to an impressive 7.2% yield.
This phenomenal performance stems from the group’s structural growth engine. As Chesnara extracts value from its existing portfolio, the cash generated funds the search for the next acquisition. And with an ageing population across the UK and Europe, the supply of closed life insurance books is only getting larger.
Each new deal adds another layer of predictable, long-duration cash flows to the pile – exactly the kind of compounding income machine that patient investors dream about.
So what could go wrong? Chesnara’s dividend isn’t comfortably covered by earnings, and the company recently reported a negative return on equity. If investment returns on its insurance portfolios disappoint, or if acquisition opportunities dry up, the income stream could come under pressure.
That said, with nearly two decades of unbroken dividend growth, management’s navigated tougher environments than this before.
2. Ashmore: an emerging markets income play
Ashmore Group (LSE:ASHM) is another specialist financial group, this time focused on asset management within the emerging market sector. It manages a long list of funds across multiple asset classes like fixed income, equity, and multi-asset strategies for institutional clients worldwide.
The excitement around this one comes from a significant upgrade. In February, Jefferies’ analyst Laura Gris Trillo upgraded Ashmore from Hold to Buy and more than doubled their price target to 285p, citing a “turning point” in the emerging market cycle as a key catalyst.
For income investors, a 7.8% yield backed by that kind of institutional conviction is hard to ignore.
However, it’s a divided picture. Other institutional analysts, like the team at Morgan Stanley maintains an Underweight rating at 208p, arguing that the recovery in emerging markets may be slower and less linear than Jefferies expects.
Whether the emerging market cycle has truly turned, or whether patience is still required, is the central question for investors considering this income stock today.
The bottom line
Two very different businesses, but both offer yields well above the market average alongside genuine institutional backing.
Personally, Chesnara’s track record of dividend consistency gives it the edge, in my eyes. But for income seekers willing to take on a little more cyclical risk, Ashmore’s 7.8% yield and a potential recovery tailwind could make for a compelling combination to investigate deeper.
