Two unloved 6% yielders that could make you very rich

Updated: 
Intu

Today I'm looking at two neglected stocks with 6% dividend yields. Is this a chance for income-hunting investors to pick up some quality stocks at bargain prices?

Not as bad as we thought

Shares of shopping centre operator Intu Properties (LSE: INTU) have fallen by 20% so far this year. With consumer spending under pressure, perhaps that's not surprising. But the stock gained 5% on Thursday morning, after the company's latest trading update suggested the outlook might not be so bad after all.

Intu says that it expects to report a third consecutive year of like-for-like growth in net rental income. Rent reviews completed between 2 July and 2 November delivered an average increase of 15% on previous rents, while occupancy remains high, at 96%. Visitor numbers are said to be unchanged from last year.

What could go wrong?

In today's update, Intu said that good progress is being made in re-letting former BHS stores to major retail chains. The group also said that none of its tenants went into administration during the period.

This is the key risk facing the firm, in my view. After all, long-term leases aren't any help if the tenant simply can't pay. And if that happens, Intu could end up with debt problems of its own.

Cheap enough to buy?

Trading conditions could get much worse for retailers. But this isn't a certainty. Intu stock now trades 45% below its adjusted net asset value of 403p per share. In my view, this discount may be large enough to price in the risks facing the firm.

Investors who take the plunge should enjoy a 6.6% dividend yield this year, along with the potential for a significant re-rating of the shares in future years.

I've changed my mind

When I last looked at Royal Mail (LSE: RMG) in June, I was fairly bearish on the stock. But my view is starting to change. The postal operator's share price has fallen by 15% since then, but trading has remained broadly in line with expectations.

The group's trading update in July showed a 1% rise in group revenue, driven by a strong performance from Royal Mail's parcel business, GLS, which includes Parcelforce. This was enough to offset a 1% fall in letter and parcel revenue through Royal Mail during the period.

Despite weak growth, cash flow remains strong and the group has very little debt. These factors make a surprise dividend cut fairly unlikely, as the firm would be able to use cash reserves or even borrowing to make up any temporary shortfall.

A potential bargain?

Full-year forecasts are for adjusted earnings of 39.4 per share this year. That puts the stock on a forecast P/E of 9.4. Dividend growth is expected to continue at about 4% per year, giving a forecast payout of 23.9p per share for the current year. That's equivalent to a yield of 6.5% at the current price of 378p.

The risk of strike action over pension reforms remains a concern, but I'm starting to think Royal Mail's share price sell-off may have gone too far. I'm considering this stock as a potential contrarian buy.

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Roland Head 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.


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