Dividend Kings - We track down the 10% yields

Once upon a time, a company sporting a dividend yield anywhere near 7% would have raised more than one eyebrow. Often indicative of a falling share price rather than a generous payout policy, such a yield would, more often than not, precede a cut in the dividend. Not now. The market is awash with big payers and some are nudging double-digits. After a little digging around, we have come up with our top 10 income generators - our dividend kings.

Of course, shares prices are generally lower right now, which obviously flatters dividend yields. But the companies in our hit parade are fully expected to maintain their payouts, at least for the foreseeable future. And lower share prices mean that a number of PLC's are paying close to double-digits, and in some cases over 10% when you include special dividends - these "one-off" payouts are becoming more regular and less special as companies promise to distribute excess cash.

As a note, we have excluded Morrisons from the list. Although it raised the interim dividend by 5% to 4.03p in September, something we said at the time was "a bold move," opinion is divided as to the safety of the payout going forward. Tesco slashed its dividend by 75%, and although the sales slump at Morrisons is beginning to slow, "there is a real possibility of a more cautious dividend policy," according to Barclays.

We've also missed out Entu (UK) purely because it has no track record of dividend payments. The Manchester-based supplier of home improvement and energy efficiency products has just begun trading on AIM and, for the year ending 31 October 2015, intends to pay a dividend that equates to a dividend yield of 8% based on the placing price of 100p. According to broker Edison, the payout is covered about 1.7 times by earnings. Entu also trades on single-digit earnings multiples and is forecast to generate double-digit profit growth for at least the next three years.

Hansard Global

It's fair to say Hansard Global's share price performance has been unspectacular this year. The long-term savings provider increased half-year underlying pre-tax profit by 19% to £14.7 million, but strip out a £5 million hit for breaching regulations and £1.4 million of other charges and profit fell by a fifth to £8.3 million.

Friday's first quarter sales figures provided no serious surprises - a slump in present value of new business premiums (PVNBP) was widely anticipated following Hansard’s new sales initiative launched earlier this year. The benefits should begin to feed through in the second half.

Dividend:

Hansard trades at a 36% discount to net asset value of 148p as at 30 June. "Too great a discount bearing in mind the acquisition prices of closed life and savings businesses, let alone ones with a good medium to long term sales outlook" says Panmure Gordon. Using the broker's forecasts, the prospective dividend yield for the year to June 2015 is 9.3%.

Direct Line

Recent third-quarter numbers from insurance firm Direct Line beat consensus estimates. Gross written premiums of £820 million easily passed forecasts for £817 million - motor and home divisions beat Deutsche Bank's forecasts - and investment income was ahead of expectations.

Of course, car insurance premiums have fallen sharply and insurers are coming under increasing regulatory pressure. But boss Paul Geddes says the business is on track to do the numbers in 2014.

Dividend:

Much of that £59 million of quarterly investment income should head straight back to shareholders via dividends. A promise to distribute excess capital unable to be utilised in what are highly competitive markets, has already resulted in a special dividend of 10p in August. Deutsche Bank pencils in dividends of 31.2p in 2014 and 28.8p next year, giving a prospective yield of over 10%.

Infinis Energy

There were major concerns that a Yes vote in the Scottish referendum could damage prospects for UK renewable energy firm Infinis Energy (INFI). With the Union intact, certainty has returned, although this year will be important for the company in terms of profit generation.

Falling oil and gas prices have forced analysts to trim power price estimates, although forward power prices are still tipped to increase as the UK power market tightens. Trading at only a small discount to fair value, it’s the sector-leading dividend yield that is Infinis' major selling point.

Dividend:

Management promises to pay £55 million, or 18.33p per share, in dividends this year, and increase the payout in line with RPI inflation. It has a 2015 estimated calendarised yield of 8.7%. "We think that Infinis can just about meet its dividend commitments over the next few years," says Deutsche Bank. "…although the long-term sustainability is less certain in our view." That's reassuring, at least short-term, as the dividend is not covered by earnings until after 2017/18 based on Deutsche's estimates. Still, it could cut the payout by 30% and still have the highest yield in the European utility sector.

Lancashire Holdings

"Performance for the quarter was fairly average," admitted Lancashire's finance chief Elaine Whelan of the insurer's third quarter. Return on equity of 1.8% took the figure to 8.1% for the year. It was certainly a challenging year for the specialty insurance sector, currently in the soft phase of the underwriting cycle. But a year-to-date combined ratio of 74.5% is still something "peers would be proud of."

"With no meaningful change in our outlook for the coming renewal season, we don't need as much capital as we are currently carrying," says Whelan.

Dividend:

Lancashire announced a dividend of 5 US cents (3p) a share during the third quarter and has just declared a special dividend for 2014 of $1.20 (75p), equivalent to a yield of over 11%. It's paid on 19 December and record date is 28 November. "A special dividend significantly ahead of market expectations is a clear positive and this should support the shares," believes Westhouse Securities.

Berkeley Group

A recent first-quarter update from Berkeley Group largely matched expectations, and the residential property developer reckons full-year earnings will hit forecasts. True, an order book flat at £2.2 billion was a little disappointing, although in the property game much depends on timing of new developments.

And Berkeley has made "good progress" in unlocking a number of sites in the land bank - the pipeline is currently over 11,000 plots and had an attributable potential gross margin of £1.5 billion at the last year end. Expect an update on this at the half year stage. It's also won new planning consents at London Dock in Wapping and a site in Chiswick.

Dividend:

Berkeley paid 90p a share dividend in September and a further 180p per share is payable in order to meet the first milestone of paying 434p by September 2015. Chairman Tony Pidgley says the firm will make regular dividend distributions, and will meet a proportion of the next milestone of 433p per share in September 2018 through regular dividend payments.

Laura Ashley

A relatively stable share price over the past two years was underpinned by Laura Ashley's better than expected half-year results in September. Adjusted pre-tax profit for the six months ended 26 July grew by 9% to £8.5 million on sales up nearly 5% at £144 million, and like-for-like sales jumped by 8% in the five weeks to 30 August.

Christmas will, as always, be crucial for Ashley, but the shares trade at a discount to the sector, which Cantor Fitzgerald analyst Freddie George reckons is unjustified "considering the company's potential for internet and overseas development, the opportunity to reduce occupancy and energy related costs and the company's gearing in the UK to any pick up in housing related spending."

Dividend:

Ashley typically pays out 2p a year in dividends, which Cantor thinks is sustainable "given the company’s model, strong cash flow and strength of balance sheet."Remember, it's expected to have a cash balance of more than £24 million by the end of January, too.

McBride

Making own-brand household products for the big supermarkets and other retailers is a tough business, just ask McBride. It's lost two-thirds of its value since 2010, but, thankfully, the company has made a solid start to the financial year and returned to "modest" revenue growth during the first quarter.

McBride is trading in line with expectations and the UK restructuring is on track to save £12 million by the middle of 2016. It should achieve a quarter of that this year. And as these savings come through, the forward earnings multiple is widely expected to narrow the substantial discount to peers.

Dividend:

Annual growth in earnings per share is expected to average about 32% out to 2017, according to Panmure Gordon. That should underpin a forecast dividend of 5p for the year to June 2015, which gives a prospective yield of over 6%.

Redefine International

Redefine is a real estate investment trust. It invests in property and enjoys certain tax benefits in return for a promise to distribute at least 90% of its taxable profits from the tax exempt business to shareholders. Little wonder then that it made our list.

The good news is that basic earnings per share grew to a record 7.98p in the year ended 31 August, up 20% from 6.66p a year ago. Adjusted net asset value (NAV) per share increased by 5% to 40.54p. Redefine, with unrestricted cash balances of £83.8 million, thinks opportunities to acquire good quality assets "may improve in 2015" as more sellers take advantage of recent yield compression.

Dividend:

"The shares now yield one of the highest dividends in the sector at 6.2%, and management continues to improve income quality through asset recycling to ensure the dividend yield can be stabilised throughout property cycles," writes Peel Hunt.

Synthomer

Synthomer's polymers are used by industry to improve everything from paint and adhesives to condoms and rubber gloves. But an uptick in demand from the European construction industry during August proved unsustainable, and the speciality chemicals company recently warned on profits.

However, a return to earnings growth is predicted for next year and in 2016 - 10% and 14% respectively. That puts the shares on a modest forward price/earnings ratio of less than 10. Non-executive director and major shareholder Dato' Lee Hau Hian remains confident. He's just bought almost £1 million of Synthomer shares at between 187p and 196p.

Dividend:

Until last week, the chemicals company was not considered a particularly generous dividend payer, but it is generating lots of cash and management has cut the level of dividend cover from 3 times earnings to 2.5 times. As a result, the interim dividend increased by 25% to 3p, and the City expects 8p for the full-year. Selling unwanted land in Malaysia could mean a special payout, too. "A special of as much as £40 million (11.8p per share) could prove possible," says Numis Securities. Even split 5.5p per share in 2015 and 7p in 2016 would give a forward yield of 6.8% and 7.8%, respectively.

BP

Lower oil prices have dominated the discussion around both industry heavyweights and tiny explorers. But a much smaller contribution from Rosneft helped wiped out a fifth of BP's third-quarter profit, too.

Underlying replacement cost profit fell to $3 billion (£1.85 billion) from $3.7 billion a year ago, with the contribution from Moscow-backed Rosneft down from $808 million to just $110 million. BP blamed the depreciation of the rouble against the dollar, lower Urals oil prices and associated duty tax lag effects. A forward price/earnings ratio of just over 9 is a 10% discount to the sector, but deserved, says Investec.

Dividend:

The biggest surprise from BP's recent results was, perhaps, the 5% quarterly dividend hike to 10 cents. "An unnecessarily brave move said one expert. Investec reckons this reflects confidence in cash flow delivery, which would cover capex and dividends in 2014 at $100 a barrel and breakeven at $80 a barrel by 2018. If oil prices stay low, bosses would be hard-pushed to justify another increase, although the yield is still over 6%.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.