Electricals retailer Dixons Carphone (LSE: DC) is clearly out of favour with investors at the moment, but I believe its shares offer an attractive, sustainable yield.
After shares in the company have lost as much 35% of their value over the past 52 weeks, its dividend yield has shot up from 3.3% a year ago, to 5.4% right now. You may now be thinking that the dividend looks too good to be true, but its dividend cover looks robust for a number of years to come.
Sure, the tough retail environment seems to be holding up Dixons Carphone's earnings, but the dividend seems secure for two main reasons. First, dividend cover is forecast to remain above 2.2 times over the next three years, despite City expectations of a 26% decline in adjusted earnings for the year to 30 April. And second, the balance sheet is in good shape, with net debt forecast to fall to around £250m by the year end.
Moreover, recent changes at the top of its management offer the most compelling upside opportunity for the stock. I reckon chief executive Alex Baldock, who took the helm of the company earlier this month, looks set to shake up the business. He has a strong reputation of transforming struggling retailers, after having previously turned around the fortunes of Shop Direct.
It's too early to say when, or even if, the company will see a significant turnaround in its earnings outlook, but low valuations present a compelling investment opportunity. With the share price trading at 210p, Dixons Carphone is valued at just 7.9 times its expected earnings this year.
Looking elsewhere, HICL Infrastructure Company(LSE: HICL) also provides a safe source of income for investors.
The company specialises in investing in infrastructure assets, an alternative asset class that is often a safe haven for investors. Through investments in mainly public-private partnership (PPP) infrastructure projects, HICL earns stable cash flows from essential physical assets, such as hospitals, schools, roads and utility facilities.
The majority of its assets are located in the UK, which accounts for roughly 80% of its portfolio value, with the remainder invested in the EU, Australia and North America.
Its investments are positioned at the lower end of the risk spectrum, and much of the revenue it earns benefits from inflation protection. As such, returns from the portfolio are positively correlated to inflation, allowing the company to deliver real value to shareholders. What's more, the company has a very long weighted average asset life of 30.6 years, underscoring the long-term nature of its investments and the longevity of its revenues.
HICL has demonstrated its skill in picking attractive investments, as it has delivered NAV total returns of 9.5% since its IPO in 2006. This has exceeded the company's long-term total return target of 7%-8% per annum, which had been set at the time of its IPO
With a quarterly dividend of 1.96p per share, the infrastructure company's shares currently earn prospective investors a yield of 5.5%.
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Jack Tang 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.