Just last week, I wrote a piece on three apparently high-yielding income shares that investors should be wary of. Today, I present three high-yielding companies whose dividend is no illusion – though investors still need to pay attention to factors affecting their core business.
Villa World Ltd (ASX: VLW) – yields 7.7% fully franked
Home builder Villa World appears cheap at first glance, with a Price to Earnings (P/E) ratio of 8, Net Tangible Assets of $2.15 per share, and a huge 7.7% dividend. The company has a track record of success, and over 5 years’ worth of future development in its land bank. Gearing (debt) appears modest at ~26% of the company’s net assets, but looks higher on another measure – 51% of equity. Yet cash flows are strong, and the company’s dividend payout ratio is modest (50% to 75% of Net Profit After Tax) compared to other listed companies. It’s hard to see a catalyst for the company being revalued higher by the market, and investors should expect lumpy profits (and thus dividends) as the company breaks ground on new residential estates. That said, Villa World’s dividend payments appear quite sustainable today.
Cromwell Group (ASX: CMW) – yields 8.4% unfranked
This property manager has offered great dividends for a number of years now, with debt-fuelled acquisitions driving its expansion. Cromwell has a couple of major developments coming to completion in the next two years, and is also growing a nascent fund management business. Gearing of 45% is not worryingly high, yet Cromwell’s dividend payout ratio is high, and its debt has a fairly short lifespan – coming due in 4 years, on average. The quality of tenants are better, with a Weighted Average Lease Expiry (WALE) of 6 years, providing some certainty of income, and just under half of its tenants are government offices. Cromwell could be a decent way to generate additional income – but as a small part of a diversified portfolio.
Genesis Energy Ltd (ASX: GNE) – yields 7.8% unfranked
As New Zealand’s largest power generator and seller, Genesis Energy enjoys reliable demand for its services, notwithstanding high competition and recent market impacts that have affected the value of its petroleum and LPG businesses. Management has guided for a flat year in 2017 and, although they have some growth initiatives in the works, Genesis does not appear to be a growth business. It does have strong cash flows and its dividend appears reliable and sustainable, making it quite interesting for income investors today.
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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.