Income shares are understandably popular with investors when inflation is galloping higher. While the payouts can never be guaranteed, they do help to offset the rise in the cost of living and the poor performance of stocks in general.
Right now, there’s no shortage of options available to me. However, two from lower down the spectrum particularly appeal — one of which I already own.
10% yield!
The share price of laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) has been on a downward trajectory like nearly everything else. In fact, the value of the company has dropped by almost 30% in 2022, so far.
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As frustrating as such falls are, I’m not about to give up on the stock. Far from it. There are a couple of reasons.
First, Somero seems to be trading just fine. Prior to last month’s Annual General Meeting, the company said it expected full-year revenue, profits and cash generation to be “in line” with previous guidance thanks to a “healthy” non-residential construction market.
Second — and the reason I’m highlighting it here — Somero is an awesome income share, in my opinion. Right now, my shares are yielding a forecast 10%!
Cyclical income share
Naturally, there are risks. Somero’s line of work clearly has a cyclical element to it. Put simply, construction tends to slow when economic clouds gather.
However, the payout still looks to be reasonably covered by profit as things stand. As such, I’d be surprised if a cut were necessary. Even so, I’m still making a point of mitigating some of this concern by also investing in very different sectors.
Trading under eight times expected earnings, Somero looks like a high-income steal to me.
Down, but not out
A second share I’d buy for the dividends would be Liontrust Asset Management (LSE: LION). You probably don’t need me to tell you that money managers tend not to do too well when there are financial headwinds. As a general rule of thumb, people are more inclined to save rather than invest at times like these.
Given the above, it’s no surprise that Liontrust’s shares are out of favour. Actually, that’s an understatement. They’ve tumbled by almost 60% in 2022 alone!
So why would I buy now? Well, a valuation of just lower than eight times earnings is tempting, considering the quality hallmarks it boasts. In better times, this is a high-margin business and one that delivers lofty returns on the capital it employs.
There’s also that dividend stream. At nearly 8%, this stock doesn’t (currently) yield as much as Somero, but it’s still an awful lot more than I’d get from a typical cash savings account. The mid-cap business also has a great record of raising its cash returns on an annual basis.
No sure thing
Of course, Liontrust stock can easily sink lower if investors get even more skittish about the near-term economic climate. However, these are just the sort of market conditions that should suit a long-term-focused Fool like myself. And when sentiment does eventually improve — and I can confidently say it will — the company should benefit from an influx of money.
Again, so long as I don’t become too dependent on any one income share, I should be fine. I’d feel comfortable buying Lionstrust stock today.
