Today, I’m looking at two stocks with dividend yields of 7% that could be great additions to your portfolio.
Under the radar
I’m sure you’ve heard of peer-to-peer investing, an industry that has blossomed since the financial crisis. Due to its nature, it’s not entirely suitable for every investor, but the potential income available makes peer-to-peer products highly attractive.
This is where P2P Global Investments (LSE: P2P) comes in — an exciting company that flies under the radar of most investors.
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Structured as an investment trust, P2P Global Investments provides investors access to a broadly diversified portfolio of opportunities generated by non-bank lending platforms. According to the company’s half-year figures, at the end of June, assets under management by the trust totalled £742m, against a market capitalisation of £625m. The discount to net asset value was 15.8% at the end of the period.
Since the report was compiled, P2P’s market value has fallen further, but I believe this offers a great opportunity. The reason why investors are avoiding the business is that the fund is currently trying to wind down a portfolio of legacy assets, which have not performed as expected.
These assets declined to 30% of the portfolio at the end of June, compared to 48% at the beginning of the year, so the company is making good progress restructuring the portfolio.
When the run-off is complete, I reckon shares in the trust could trade back up to net asset value. Management is targeting a dividend of at least 15p per quarter in the medium term, against the existing 12p per quarter. When it hits this target, I calculate the dividend yield will be 7.7%, based on P2P’s current share price. At the current dividend rate, the shares yield a still-attractive 6.2%. So, as the company restructures its operations, investors are being paid to wait.
Much to prove
P2P is a recovery play. But if you’re looking for an investment with a more stable outlook, I believe it’s worth considering Galliford Try (LSE: GFRD).
There is much to like about this home building and construction company. For a start, the stock supports a dividend yield of 7.1%, and trades at a forward earnings multiple of only 7.1. The dividend is covered twice by earnings per share, so it’s immediately clear that the market-beating dividend yield is sustainable.
Unfortunately, it seems that the market is still worried about the state of Galliford’s balance sheet. A few months ago, the company had to cut its dividend and raise £150m in new equity to support its balance sheet following Carillion’s collapse.
To try and reassure the market, back in July Galliford put out an update stating that trading for the year was going to plan. What’s more, management proclaimed net debt for the year that ended June 30 is expected to be below previous guidance at £227m, excluding the benefits of the £150m rights issue.
I reckon the market is waiting for the business to provide more concrete evidence of its turnaround. When it does, the shares could substantially re-rate as confidence returns. Considering the company’s latest trading update, I think investors could gain an edge by buying in now, before the rest of the market realises the opportunity.
