Two 5%+ dividends that could help you become a millionaire

Now could be the perfect time to buy these two shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

With the inflation rate reaching 2.7% last month, it is becoming increasingly challenging for investors to generate a real-terms income return. Looking ahead, the rate of inflation is forecast to move higher. An uncertain period for the UK in a political sense could cause a further weakening of the pound. This, in turn, may lead to higher import prices which are then passed on to consumers in the form of higher inflation.

Given this backdrop, buying higher-yielding shares could be a shrewd move. Here are two stocks which could be worthwhile income plays.

Improving performance

Reporting on Tuesday was owner and operator of student accommodation across the UK, Empiric (LSE: ESP). The company’s trading update showed that it is making solid progress with its current strategy. Its net asset value (NAV) per share increased to almost 108p from just under 106p as at 31 December 2016. This puts the company’s shares on a price-to-book (P/B) ratio of just over one, which indicates that they offer excellent value for money.

The company’s development pipeline is on track. It is anticipating an annual rental uplift for the 2017/18 academic year of around 2.8%, which is likely to be a similar level to inflation. Its property portfolio has been valued upwards versus its December 2016 level. It now stands at £786.7m compared to £721.3m at the end of last year.

Looking ahead, Empiric is aiming to deliver a dividend per share of 6.1p for the full year. This puts its shares on a dividend yield of 5.5%, which is more than twice the current rate of inflation. As such, they could offer a strong income return, as well as the scope for capital gains.

Bargain buy

While the prospects for the UK property sector have deteriorated, the buying opportunity for long-term investors may have improved. For example, Berkeley Group (LSE: BKG) continues to trade on a low valuation with a relatively high yield. Certainly, the prospects for the prime property market have worsened in recent months. The potential exodus of financial professionals and the uncertainty brought about by Brexit may lead to lower demand for prime property, but weaker sterling could help to offset this somewhat by encouraging foreign buyers to invest.

With Berkeley now trading on a price-to-earnings (P/E) ratio of 7.3, it appears to offer a wide margin of safety. Its dividend yield stands at over 6%, and yet is covered more than twice by profit. This suggests its future dividend payments are highly affordable and could provide an inflation-beating income stream for the company’s investors over a sustained period.

Although UK house prices may fall and this may lead to some share price volatility in the near term, Berkeley appears to offer a mix of value and income potential for the long run. As such, even after a 12% rise since the start of the year, its share price could move higher.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

With a £20k Stocks and Shares ISA, here’s how to aim for passive income of £228,688!

A £20,000 Stocks and Shares ISA could be an absolute passive income goldmine over the long term. Our writer explains…

Read more »

Two elderly people relaxing in the summer sunshine Box Hill near Dorking Surrey England
Investing Articles

FTSE 100 shares: a long-term chance to get rich?

This writer believes it is possible to build long-term wealth by building a portfolio of carefully chosen, attractively priced FTSE…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

What sort of shares can make sense to buy for a SIPP?

Thinking about the right shares to buy for a SIPP can involve a long-term view and some self-awareness. Here, our…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how £20k of savings could one day generate £841 of monthly passive income

A passive income plan built around investing in dividend shares could be a simple but potentially lucrative way to earn…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

Prediction: in 12 months, the recovering aberdeen share price could turn £10,000 into…

After a terrible run the aberdeen share price is finally showing some zip and Harvey Jones says the FTSE 250…

Read more »

Illustration of flames over a black background
Investing Articles

Here’s a FTSE 100 insurer to consider buying for a SIPP

Our writer looks at the pros and cons of including one of the Footsie’s insurance companies in a Self-Invested Personal…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should every investor be like Warren Buffett and have an insurance company in their portfolio?

Berkshire Hathaway, Warren Buffett’s investment vehicle, has been a long-time investor in insurance. Our writer takes a closer look at…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

3i Group: unravelling the finances behind one of the FTSE 100’s most profitable companies

Mark Hartley breaks down why 3i Group's one of the most profitable companies on the FTSE 100, and the risks…

Read more »