2 'forgotten' dividend stocks with FTSE 100-beating potential
While there are a number of high-yield stocks which are popular among income investors, others are less so. However, this does not mean they should be avoided. In fact, it is possible to obtain relatively high and fast-rising dividends from shares which are somewhat unloved or forgotten among income-seeking investors. Here are two examples of such stocks, both of which offer high yields and the potential to beat the FTSE 100 in 2017.
A solid financial services stock
Wealth manager Brewin Dolphin(LSE: BRW) currently yields 4.6%. That is almost 1% higher than the FTSE 100's yield. Furthermore, the company's shareholder payouts seem to be well-covered by profit, with it having a dividend coverage ratio of over 1.3. This indicates that even if profit growth should be somewhat lacklustre, Brewin Dolphin could still increase dividends at a relatively brisk pace so as to maintain real-terms dividend growth over the medium term.
The company is forecast to record a rise in its bottom line of 14% next year. This may be somewhat surprising, since Brexit may be viewed as a major threat to its business. But since the performance of the FTSE 100 is driven largely by the international economic outlook and the strength of sterling, it may offer high capital gains in 2017 and beyond. Since Brewin Dolphin's financial performance is linked to the level of the wider index, it could enjoy a prosperous period in future.
With the company's shares trading on a price-to-earnings growth (PEG) ratio of just 1, they appear to offer excellent value for money. While it may not be an obvious income choice for many investors, it nevertheless appears to be a worthwhile purchase which is capable of beating the FTSE 100 in 2017.
High-risk dividend opportunity?
Global mobile satellite communications services specialist Inmarsat(LSE: ISAT) may not be the most stable of stocks, but its yield indicates that it is worth buying for the long term. It currently yields 7.2%, which is almost twice the FTSE 100's yield. As such, it is set to offer an almost unrivalled income return in the next few years, which could cause investor demand for its shares to rise rapidly.
However, recent results have been somewhat mixed. Inmarsat's profit has fallen in each of the last two years, and it is forecast to record a decline in its earnings of 9% this year. While disappointing, growth of 18% in 2018 should help to boost its dividend coverage ratio of around one and provide a potential catalyst for its share price.
Trading on a PEG ratio of 0.7, Inmarsat appears to be cheap. It may not offer the stability or consistency of other FTSE 350 income shares, but its high yield appears to make up for this. Alongside its stunning growth potential and low valuation, this means that it could outperform the FTSE 100, not just in 2017, but in future years too.
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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.