Why bother with buy-to-let when you could own these 2 dividend shares yielding over 7%

The prospects for the buy-to-let industry appear to be worsening. The government seems to be intent on reducing the appeal of second-home ownership, with a variety of tax changes expected to cut a landlord’s profit potential. Alongside this, low interest rates may or may not continue over the medium term, with Brexit having the potential to cause changes to monetary policy forecasts.

At the same time, the FTSE 100 now yields 4.3%, while the FTSE 250 has a dividend yield of over 3%. Within the two indices, though, it’s possible to find significantly higher yields, with these two stocks highlighted below yielding over 7% apiece. As such, they could offer significantly better total return potential than a buy-to-let, in my opinion.

Improving prospects

FTSE 250 share Phoenix Group(LSE: PHNX) released a trading update on Thursday which suggested that it’s making progress with the delivery of its strategy. The life and pensions consolidator generated £664m in cash in the year-to-date, with the combined figure for 2017 and 2018 at £1.3bn, ahead of its target of £1bn-£1.2bn. It has also strengthened its Solvency II surplus position during the current year to £3.1bn.

The company has continued to move ahead with the delivery of its strategy, with a further two bulk purchase annuity transactions taking place in the second half of the year. The acquisition of Standard Life Assurance could prove to be transformational for the company, with £400m of capital synergies already delivered.

With Phoenix Group having a dividend yield of 7.6%, and forecast to grow dividends by over 2% next year, it could become an increasingly appealing income share.

Changing business

Also offering an impressive income investing outlook is Imperial Brands(LSE: IMB). The company’s shares have disappointed in recent months, with investors becoming increasingly downbeat about its prospects. Cigarette volumes continue to fall, with consumers becoming increasingly health conscious. Regulatory change may also be weighing on cigarette sales, and could impact on the industry over the medium term.

Against this backdrop though, the company seems to be adapting well to a changing industry landscape. It’s focused on developing next-generation products, such as heated tobacco and e-cigarettes. They’re expected to offer high growth prospects over the long run as consumers seek less harmful nicotine-delivery products. As such, they could prove to be a strong growth area, which adequately offsets the fall in cigarette volumes.

With Imperial Brands also having significant pricing power in its tobacco business, its future prospects continue to be upbeat. It’s due to post a rise in earnings of 3% next year, with dividends forecast to increase by 8% so that the stock has a dividend yield of 8.3% in the 2019 financial year. Clearly, the company is unpopular at present, but from a long-term income investing perspective, it could generate high returns.

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Peter Stephens owns shares of Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.