Many investors will be drawn to the ‘usual suspects’ for their dividend fix, namely FTSE 100 companies. However, I think looking further down the market spectrum can also be a good idea. Here are three less-well-known shares I’d be prepared to buy today.

Liontrust Asset Management

Like many other listed companies, fund manager Liontrust (LSE: LIO) hasn’t had the greatest of starts to 2022. Actually, that’s an understatement. Its share price has now tumbled 24% year-to-date, most likely due to concerns that profits will fall due to people pulling their money out of the market. 

That’s said, it’s still up 34% over the last 12 months. And, of course, the beauty of investing for dividends is that I can take such volatility in my stride so long as the passive income keeps rolling in. 

Importantly, Liontrust has consistently hiked its annual payout by a double-digit percentage for many years. Analysts have the company returning 64.1p per share in the current financial year. At today’s share price, that equates to a yield of 4%. It’s also sufficiently covered by profits, making a cut unlikely.

That said, investors need to be aware that the fund management industry is notoriously competitive and there’s always a risk Liontrust may need to cut fees to help retain clients.

Redde Northgate

Redde Northgate (LSE: REDD) provides “mobility solutions and automotive solutions” to businesses. It also strikes me as a great source of dividends.

The £1bn-cap company looks set to return 19.4p per share to holders in FY22, giving a chunky yield of 4.9%. This should help holders to keep up with rising costs. Like Liontrust, the payouts are safely covered by expected earnings. With the exception of 2020, Redde Northgate is also a regular dividend hiker. 

The shares aren’t exactly expensive either, changing hands for nine times forecast earnings. That’s despite the company’s value rising 45% over the last 12 months!

I suppose one thing to bear in mind here is that Redde Northgate may need to replenish its fleet of vehicles every now and then. That could end up reducing margins significantly, especially at today’s prices.  

Synthomer

Chemicals firm Synthomer (LSE: SYNT) is a final secret stock offering a tempting dividend yield. It’s a leading supplier of aqueous polymers that are used in things such as latex gloves.

Just like the aforementioned asset manager, Synthomer’s share price has been on a downer since the beginning of 2022. In the last 12 months, it’s fallen 22%. On a positive note, this does leave them looking cheap at just seven times expected earnings. 

Unfortunately, the dividend is expected to fall by 22% this year. However, I’m including it here for two simple reasons. First, the yield is still expected to be 5%, which is a far more passive income than I’d get from a cash savings account. Second, this payout looks thoroughly secure based on predicted profits. 

Similar to Redde Northgate, a risk with Synthomer is that supply chain hold-ups may impede growth. This may explain why the shares have been out of form recently.

Notwithstanding this, the vast majority of brokers covering the company remain positive. This suggests now might be as good a time as any for long-term investors like me to load up.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The performance from a business perspective, though, appears to be relatively sound. It now offers a wide margin of safety, which could suggest that there’s a buying opportunity on offer. However, not all stocks which have experienced declines of late may offer the same level of appeal, as highlighted by a company which released an investor update on Tuesday.

High valuation

That stock in question is accident management, incident management and legal services specialist Redde (LSE: REDD). The positive start to its financial year, reported in its recent AGM statement, has continued into December. Sales are showing an increase over the same period last year and reflect continued growth in trading volumes. As a result, trading profits are also ahead of the prior year.

While the company’s performance in its financial year-to-date has been positive, it’s expected to report a rise of just 1% in earnings in the current year. This suggests it may lack a clear catalyst to allow its share price to recover following its decline of 14% in the last three months.

Even after its recent drop, Redde doesn’t seem to offer a wide margin of safety. For example, it has a price-to-earnings (P/E) ratio of 12.4, which suggests it may be fully valued, given its modest growth outlook. At a time when other stocks offer wider margins of safety following recent falls, it may be a company to avoid.

Improving outlook

In contrast, HSBC could offer strong recovery potential after a challenging period. The bank is expected to post a rise in net profit of around 5% in the next financial year, with investment in its growth strategy set to pay off.

Despite its improving financial outlook, it has a P/E ratio of around 11.4, which suggests that it may be cheap relative to some of its FTSE 100 peers. And since it has a dividend yield of 6.1%, from a payout that is covered 1.4 times by profit, its income potential appears to be high relative to the large-cap index.

Of course, HSBC faces a number of risks. The prospects for the global economy are uncertain at present. There’s a danger that a full-scale trade war will come into effect in 2019, with relations between China and the US poor following a number of tariffs placed on various goods and services. This could reduce investor expectations when it comes to the GDP growth prospects for a variety of countries and regions.

However, in the long run, the bank’s low valuation, high yield and diverse presence across the global economy could allow it to generate improving total returns, in my opinion.

The post The HSBC share price has dropped like a stone in 2018. Here’s why I’d buy it today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Looking ahead, there could be risks to the oil and gas sector’s prospects, which may pose a threat to the company’s share price performance. Alongside another stock that’s also outperformed the FTSE 100 in the last year, and which released a positive update on Wednesday, could Premier Oil be worth buying for the long run?

Income potential

The second company in question is accident management, incident management and legal services specialist Redde (LSE: REDD). Its trading update stated that the positive start to the financial year, reported in September, has continued. Sales are up on the previous year, which reflects a rise in trading volumes. As a result, trading profits are ahead of the previous year, with the company optimistic about its future potential.

Its share price has risen by around 14% in the last year. Despite this rise, it continues to have a relatively high dividend yield. The income return in the current year is expected to be 6.7%, which suggests the stock could still offer value for money, even after its capital gains of recent months.

With Redde having a track record of growth, and what appears to be favourable operating conditions, the company could perform well in future. As such, it may be able to continue to outperform the FTSE 100 over the coming years.

Low valuation

While the Premier Oil share price may have experienced a strong performance in recent months, investors still seem to be relatively underwhelmed about its financial outlook. The company is expected to post a rise in earnings of 74% in the next financial year, as a result of higher oil prices and increased production. However, its shares trade on a forward price-to-earnings (P/E) ratio of around 5.5, at present. This suggests that they may offer a margin of safety.

Of course, oil shares are notoriously unpredictable. Just a few years ago, Premier Oil was in a difficult position, with high debts and a low oil price hurting its outlook. Now, free cash flow is improving, and debt levels are set to fall over the medium term.

Given the uncertain outlook for the world economy, a more challenging period for the oil price could be ahead. This could lead to less growth potential within the wider industry, while investor sentiment may also weaken to some degree. However, with the long-term prospects for the industry upbeat, due to forecasts of resilient demand and limited supply, the potential for Premier Oil to keep beating the FTSE 100 over the coming years may begin to improve.

The post Think Premier Oil’s share price can keep beating the FTSE 100? Read this now appeared first on The Twelfth Magpie.

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If you want to generate a retirement income from your stock portfolio, dividend stocks like this can seem very attractive. But it’s very important to make sure that these payouts are sustainable and are not a warning that problems lie ahead. Let’s take a look.

An 11% yield. Really?

FTSE 100 mining and steel group Evraz (LSE: EVR) boasts a forecast dividend yield of 11% for 2018. Looking at the group’s performance so far this year, I have no reason to doubt this projected payout.

Cost savings and stronger market prices meant that the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 65.5% to $1,906m during the first half of this year, compared to the same period last year.

Free cash flow rose by 20% to $661m and the group was able to reduce net debt by $100m to $3.9bn, while still paying out $617m in dividends.

Shareholder dividends paid with respect to the 2018 financial year are expected to total $0.70 per share (about 54p), giving a prospective yield of about 11%.

Buy, sell or hold?

The Evraz share price has risen by 36% so far this year, cementing the company’s place in the FTSE 100.

However, this year’s bumper profits (and dividend) are expected to be a one-off. Analysts expect earnings to fall by 35% to $0.75 per share in 2019. The dividend is expected to fall by a similar amount to $0.41 per share.

These projections put the stock on a forecast price/earnings ratio of 8.4, with a prospective yield of 6.5%. This still seems attractive to me. I think there’s a good chance that Evraz will continue to deliver above-average returns to shareholders.

3 years of 7% dividends

One of the other high-yield stocks on my watch list is claims management firm Redde (LSE: REDD) provides legal services, courtesy cars and other services related to motor insurance claims.

The group was hit by regulatory changes a few years ago, but seems to have adapted successfully to the new rules. Revenue has risen from £204m in 2012/13 to £472m in 2016/17. The group’s 2017/18 results, published on Thursday, showed further progress. Revenue rose by 11.6% to £527m, while the group’s pre-tax profit was 22% higher, at £38.8m.

One of the attractions of this business is that it generates a lot of free cash flow. This allows the company to pay out the majority of earnings in the form of cash dividends. For this reason, Redde shares have offered a dividend yield close to 7% for at least the last three years.

Can this continue?

I’ve been wary about investing in this stock in the past, but I’m increasingly convinced that the group’s business model is sustainable and attractive to investors.

Redde’s performance last year suggests to me that it’s gaining market share, with a 19.3% increase in credit hire cases and more repairs completed.

Analysts expect profits to be fairly flat in 2018/19, putting the stock on a forecast P/E of 14 with a prospective yield of 7.1%. Based on this year’s performance, these estimates seem very reasonable to me. If you’re looking for high-yield dividend stocks, this could be worth a closer look.

The post Why this FTSE 100 stock yielding 11% could help you retire early appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

To help you find new income investment ideas, I’m looking at two high-yield dividend stocks which have caught my eye. Both stocks are held by high-profile fund manager Neil Woodford.

This could be safer than housing

If you’d like some exposure to UK property but are concerned about the housing market, student accommodation specialist Watkin Jones (LSE: WJG) could be an ideal alternative.

The Watkin Jones share price rose by nearly 4% in early trade this morning after confirming it’s on track to meet full-year expectations. All of the student developments due for delivery by summer 2018 have now been pre-sold to landlords, as have some of those due for completion by summer 2019. In total, the company has secured planning approval for over 8,300 ‘beds’ from its pipeline of 9,800 beds.

Watkin’s build-to-rent housing business is also growing. The pipeline of sites with planning approval has risen to 700 homes during the six months to 31 March. The firm now expects to build 1,500 homes over the next five years.

Why I’d buy

The shares have fallen by about 15% since mid-January, when chief executive Mark Watkin Jones announced plans to stand down after 15 years in charge.

I’m not too concerned by this. His departure is being carefully managed and he intends to remain available to the firm for advice. I think the weakness we’ve seen so far this year could be a buying opportunity.

Unlike conventional housebuilders, this business is focused on the more buoyant student accommodation sector, which should provide stable long-term demand. Alongside this, the company builds houses for large rental landlords, another area where demand is growing.

Taken together, I expect these operations to provide fairly reliable profits. And with the shares now trading on just 12 times forecast earnings and offering a 4% dividend yield, I believe this stock deserves a buy rating.

A reliable 7% yield?

A dividend yield of more than 6% is often seen as a sign that the payout might be cut. But accident management group Redde (LSE: REDD) has maintained a payout above this level for several years without problems.

The group’s shares currently offer a forecast yield of 6.9% for the year ending 30 June and of 7.3% for the following year.

One of the reasons for this strong growth is that the company’s operations generate a lot of free cash flow. Since Redde started paying dividends in 2014, its payout has been covered by surplus cash every year.

The firm’s operations include running a courtesy car fleet of nearly 10,000 vehicles and providing legal services such as compensation claims to drivers involved in collisions. Although the legal side of the business has been affected by regulatory changes, profits seem to have remained stable.

Looking ahead, analysts expect Redde’s earnings to rise by about 7.5% to 12.1p per share this year. The dividend is expected to rise by 11% to 11.8p per share.

The group’s track record suggests that these figures may be achievable and sustainable. Trading on a P/E of 14 with a prospective yield of 6.9%, I’d rate Redde as a buy.

The post 2 cheap Neil Woodford dividend stocks I’d buy for my ISA today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With that in mind, here are two which appear to offer a mix of rising dividend and appealing yields.

Impressive performance

Reporting on Monday was specialist accident management, legal services, fleet management and niche insurance product provider Redde (LSE: REDD). The company’s trading since its full-year results announcement on 7 September and AGM statement on 25 October has been positive. Sales have continued to show an increase over the corresponding period of the previous year. This reflects growth in trading volumes, with trading profits being ahead of the prior year period.

As well as impressive operational performance, Redde’s investment case is centred on its dividend. The stock currently has a dividend yield of 6.8%, which is above and beyond the current rate of inflation. It also has a solid track record of dividend growth. For example, in the last three years, shareholder payouts have increased at an annualised rate of around 12.2%.

While Redde’s dividends are barely covered by profit at the present time, the company seems to have a solid business model. It is due to post growth in earnings of 2% in the current year and with its strategy seemingly sound, it could continue to offer inflation-beating dividend growth over the long run.

Dividend growth

Also offering an upbeat outlook for income investors is British Airways-owner IAG (LSE: IAG). Its performance in the last few years has been exceptionally strong, with the company being able to restart dividends after a period of difficulties. In fact, dividends per share have increased by a third over the last two years. Yet they are still covered 3.7 times by profit, which suggests that they could increase at a significantly faster rate than profit and remain highly sustainable.

Looking ahead, IAG is expected to post a rise in its bottom line of 5% in the current year, followed by further growth of 7% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1, which suggests that as well as a fast-growing dividend, the stock could have upside potential.

Certainly, the airline industry is highly cyclical. But with a wide margin of safety and encouraging growth potential, now could be a good time to buy the diversified airline stock. As well as this, it has a dividend yield of 3.7% at the present time. This is ahead of inflation and could become more appealing if the price level continues to rise.

The post 2 high-growth dividend shares with millionaire-maker potential appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Turnaround temptation

Outsourcing group Capita (LSE: CPI) has lost 57% of its value over the last two years. The recent half-year results weren’t great either. Free cash flow was 9% lower than last year and operating profit fell by 28% on flat revenue, suggesting costs remain a problem.

The shares fell sharply following the release of these figures, and Capita stock now trades on a forecast P/E of 10, with a prospective dividend yield of 5.9%. That may seem cheap, but the group’s £1.6bn debt burden means gearing has become uncomfortably high, at 2.9x earnings before interest, tax, depreciation and amortisation (EBITDA).

The group’s target is 2.0x-2.5x. Personally, I’d prefer to see this figure fall below 2x, given the increasingly low-margin nature of Capita’s business. The group’s operating margin has fallen from 12% in 2011, to just 3% last year.

Incoming chief executive Jon Lewis seems unlikely to be able to deliver rapid sales growth. So he will need to cut costs in order to boost profits and reduce leverage. It’s not yet clear how easy this will be.

IT opportunity?

Looking further ahead, the big opportunity for Capita may be in the technology sector. Much of the group’s core strength lies in technology and Lewis has said that he sees “a real opportunity to build a world-class, technology-enabled services business”.

Shifting Capita’s focus from labour-intensive, low margin work and towards technology-based projects could lift margins. But this won’t happen overnight and the process of transition could be painful.

For this reason, I think it might be prudent to wait until after Lewis has had a chance to have a good look round before committing any fresh cash to the stock.

An affordable 7% yield?

One Woodford stock that has caught my attention is motoring claims management and legal services group Redde (LSE: REDD).

This company has delivered consistent growth, despite changes to the regulatory environment. Redde also generates a surprising amount of free cash flow, which has enabled the firm to pay generous dividends.

Analysts are forecasting a total dividend of 11.5p per share this year, giving a prospective yield of 7.1%. I believe that the group’s strong cash generation means this should be affordable. However, it’s worth noting that this payout is only covered once by forecast earnings, which are also 11.5p per share.

This would normally raise warning flags for me, but the group’s free cash flow – from which dividends are actually paid – has historically exceeded its earnings per share. With net debt extremely low, there’s no reason to think that the group will need to cut its payout if trading remains stable.

It’s not often that the market offers you the chance to invest in a stock with a supportable 7% yield. And while Redde does carry some regulatory risk, I think these shares could be worth considering as part of a diversified income portfolio.

The post One Woodford high-yield stock I’d buy ahead of Capita plc appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

SSE

Utility giant SSE (LSE: SSE) is a popular stock among UK dividend investors. The company paid out dividends of 91.3p for FY2017, which at the current share price, equates to a fabulous yield of 6.4%. But is the company a dividend ‘lock’ going forward? I see arguments for both the bull case and the bear case.

Starting with the bull case, SSE undeniably has a fantastic dividend growth track record. Indeed, the company has increased its dividend every year over the last decade, from 55p to 91.3p, a compound annual growth rate (CAGR) of an inflation-beating 5.2%.

SSE clearly values rewarding its shareholders with dividends, and states on its website: “we believe that our first responsibility to shareholders is to give them a return on their investment through the payment of dividends.”

In July, the company commented that it is “continuing to target an increase in the full-year dividend for 2017/18 of at least RPI inflation, with annual increases thereafter of at least RPI inflation also being targeted.”

That all sounds very positive for income investors.

However, on the bear side, it’s worth noting that dividend growth has slowed in recent years, with the company increasing its payout by just 2%, 1.1% and 2.1% over the last three years. Furthermore, SSE’s dividend coverage ratio is forecast to be just 1.23 times this year, which adds an element of risk to the investment case from a dividend investing perspective.

Dividend coverage measures how comfortably a company can cover its dividend payout with its earnings, and the general rule of thumb is that a level of two is considered safe, while a level under 1.5 is considered more risky. If profitability falls (as it did recently with Provident Financial), the company may no longer be able to afford to pay its dividend.

SSE stated in July that it is “continuing to work to keep dividend cover for 2017/18 within the expected range of around 1.2-1.4 times, although as previously indicated, it remains likely to be towards the bottom of that range.” This is clearly something to monitor.

So while SSE’s yield looks attractive in this low interest rate environment, the investment case from a dividend perspective certainly isn’t risk-free.

Redde Group

Another Woodford holding with a sizeable dividend yield is Redde Group (LSE: REDD), which operates a group of companies that provide accident management support, legal services, fleet management and insurance policy fulfilment services.

Redde Group reported full year FY2017 results this morning, and the numbers look good, with turnover increasing 25% to £472.3m and adjusted basic earnings per share rising 16% to 11.26p. The company proposed a dividend of 10.6p, up 10% on last year, equating to a yield of 6.2% at the current share price. 

However, I believe income investors should approach this yield with an element of caution. Redde’s dividend coverage ratio of 1.06 suggests that the company is paying out nearly all its earnings as dividends, and that means that if earnings were to fall in the future, the current payout would most likely be unsustainable.

For that reason, Redde isn’t a stock I’d buy for its dividend, as I prefer companies with higher levels of  coverage.

The post 2 Neil Woodford dividend stocks yielding more than 6% appeared first on The Twelfth Magpie.

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The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As miners continue to recover from the recent commodity crash, oil explorers lick their wounds and repair their balance sheets and the major UK indices hover near all-time highs, it’s becoming increasingly difficult for income investors to find the bumper dividend yields that the LSE used to reliably provide. But that doesn’t mean there are no huge yielders left, as the 6%+ yields offered by Capital & Regional (LSE: CAL) and Redde (LSE: REDD) illustrate. But should income investors rush to buy both these options or is caution warranted?

A capital idea? 

Well, despite all the talk of weakening consumer confidence and slowing retail sales, mall owning REIT Capital & Regional continues to perform well so far. In the half year to June the company’s adjusted profits rose 6.6% year-on-year (y/y) to £14.5m, thanks to like-for-like rental income rising 0.5%, increased revenue from its centres’ car parks, and cost-cutting designed to cut the bloat from central office functions.

Together these boosted adjusted earnings per share from 1.94p to 2.06p y/y and allowed the interim dividend to increase to 1.73p. This puts the company on track to meet or exceed analysts’ forecasts for a full-year payout of 3.66p that would yield around 6.3% at today’s stock price.

However, I see a few reasons to be cautious about investing in Capital & Regional at this time. The main reason is simply the fact that macroeconomic headwinds including inflation and stagnant wage growth are building and threaten all companies reliant on healthy retail spending. We’re already seeing the effects of this in the company’s H1 results as footfall to its centres fell 0.9% y/y.

To be fair, this was better than the sector average thanks to the majority of its centres catering to more value-focused stores, but lower footfall will eventually lead to falling rents, property values and profits for the company. Furthermore, it is relatively highly leveraged even for a REIT. At the end of June the group’s loan to value ratio was 49%, compared to 22.2% for Land Securities and 29.9% for British Land. With above-average debt levels and sector-wide headwinds mounting I’ll be steering clear of Capital & Regional despite the very nice dividend yield.  

Ready-made income potential 

I’m much more interested in the 6.7% trailing yield offered by Neil Woodford-backed motor accident solutions provider Redde. The company’s business model is to serve as the outsourcer of choice for motor insurers by providing claims processing, appropriate legal services and securing temporary rental cars.

The business has been growing sales at a steady clip in recent years by bringing in new insurance customers, cross-selling and up-selling its variety of services and acquiring related companies. In addition to growing sales, the company has few fixed assets and little need for major capital investments so it’s fairly profitable and can direct the bulk all of its profits to shareholders via dividends.

In the company’s latest results, which cover the six months to December, net cash generated from operations rose to £22.3m and management paid out £14.9m of this in dividends. With net debt of just £13.5m at period end, big dividend payouts and an attractive valuation of 14.3 times forward earnings, I reckon income investors would be well served by taking a closer look at Redde.

The post One 6% yielder I’d buy and one I’d sell appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That’s easily within an average working life, and you could do even better — the chances are you’ll get some share price appreciation too, and as you progress through your career you should be able to increase your monthly investments.

Checking my watchlist of big dividends, I see DFS Furniture (LSE: DFS) as a very nice cash cow, offering tasty dividend yields that should exceed 6% — shareholders got 5.1% last year, and analysts are expecting 5.9% this year and 6.4% next.

Special dividend

And this year, while lifting its interim dividend by 5.7% (and well ahead of inflation), DFS announced a special dividend of 9.5p per share. Chief executive Ian Filby spoke of the firm’s “continued good sales growth and strong cash generation reflecting the successful implementation of our proven growth strategy” and said he expects “long-term profitable growth“.

In its current public incarnation, DFS was only floated in March 2015, and just a little over a year later its shares were hammered by the EU referendum result. Since then we’ve seen a bit of a recovery, but at 275p the price is still up only 8% since the IPO, and I think that’s providing a good buying opportunity.

We’re looking at forward P/E multiples of around 11.5, and I can’t help attributing that in part to weak sentiment surrounding the UK economy and discretionary spending as we hurtle towards Brexit.

But I see it as overdone. DFS is very good at selling its goods, is strongly cash-generative, and has a policy of rewarding shareholders through dividends and share buybacks. It looks like a good time to lock in an attractive long-term yield to me.

A Woodford wonder?

Redde (LSE: REDD) is a very different kind of company, but it’s also handing out big dividends — with yields of around 6% for the past couple of years, set to rise to 6.5% by June 2018 if forecasts come good.

Dividends are only just about covered by earnings, and that might worry some investors, but it’s all down to the nature of the business. Redde is an accident management company, and almost all of its profits translate into free cash flow and are paid out as dividends — it’s a relatively low-asset business and appears to need very little in the way of capital expenditure.

Neil Woodford likes the look of Redde too, and holds it in his Equity Income Fund. In fact, at the last count, Mr Woodford’s fund held approximately 24% of Redde’s shares, with Invesco (his previous employer) holding 28.5%. 

A buying opportunity

Although the share price has been flat for the past 18 months, it has soared by a massive 1,260% in five years as the company has matured into a highly profitable cash machine.

The shares are on a forward P/E of 16, dropping to 15.4 on 2018 forecasts. Compared to the FTSE 100 long-term average P/E of around 14 and dividend yields of about 3%, I don’t see that as too stretching at all.

It is a bit of a risky business to be in, but I see Redde as being close to the best in its class — and Neil Woodford’s stamp of approval makes me feel that bit more confident in it.

The post Two 6% dividends that could help you become a millionaire appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.