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3 stocks with dividend yields above 7%

While a check of the shares tables will provide a number of companies with stated historical dividend yields of 7% (or even more) many of these companies will fail to provide investors with a 7% dividend yield over the coming 12 months.

This is particularly true of companies operating within the mining services sector where their forecast earnings for the current year are significantly below the past year, making it highly likely that dividends will have to be cut.

With that warning in mind, here are three companies that should come close to at least maintaining their previous dividend payout into the current year thereby providing investors with a dividend yield of over 7% based on their current share prices.

Korvest (ASX: KOV) specialises in metal and walkway fabrication, hot dip galvanising and the manufacture of cable and pipe support systems and fittings. The company paid a fully franked dividend of 46 cents per share (cps) for the financial year (FY) 2013. At the firm’s recent Annual General Meeting (AGM) the chairman stated that: “With a more buoyant start to the new financial year it is expected that the first half result will be in the range of 30-45% better that the second half FY 2013 result and approximately in line with the previous corresponding period.”

This statement should provide reasonable confidence that Korvest will grow its earnings, which should allow the company to maintain its dividend level despite a reduction in the planned dividend payout ratio. With the share price at $6.53, Korvest is trading on a dividend yield of 7%.

Dicker Data (ASX: DDR) is an Australian-based wholesale distributor of computer hardware and related products. The company has agreements with leading brands such as Toshiba and ASUS and distributes products to over 2,600 resellers.

The firm is one of the few listed businesses that pay dividends quarterly. In FY 2013 the total dividends paid amounted to 7 cps. Its broad client base provides a higher degree of stability and consistency to its sales and earnings than many other firms of a similar size. With the share price currently at 97 cents, Dicker Data is trading on a dividend yield of 7.2%.

DWS (ASX: DWS) is an information technology (IT) services company with a market capitalisation of nearly $200 million. The company focuses on clients within government and large, blue-chip corporations.

In late October, DWS provided guidance to the market that it expected a fall in first-half earnings due to soft trading conditions. While DWS was forced to reduce its dividend from 12.5 cps in FY 2012 to 11 cps in FY 2013, the current consensus forecast is for the company to pay a FY 2014 dividend of 10.8 cps. With the shares currently trading at $1.33 this suggests a dividend yield of 8.1% however the risk of a dividend cut would appear to be to the downside.

Foolish takeaway

One reason that the banks and Telstra (ASX: TLS) are so popular is because investors have a high degree of confidence in their ability to maintain and potentially grow their dividends. While many other companies don’t offer such surety, a significantly higher dividend yield can provide a reasonable risk-reward trade off.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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