The dividend yield of these 2 income stocks just jumped almost 25%
The volatility in the stock market over the past couple of weeks has been very pronounced. The conflict in the Middle East has spooked some investors who’ve rushed to sell stocks. However, the move lower has created potential opportunities in income stocks. Here are two companies whose yields have risen sharply.
A short-term hit
The dividend yield calculation factors in the dividend per share and the share price. Therefore, if the dividend hasn’t changed in recent weeks but the share price has fallen, it pushes up the overall yield.
One company this has happened to is Unite Group (LSE:UTG). The share price is down 19% in the past month and 42% over the last year. It’s the largest owner, developer, and manager of purpose-built student accommodation in the UK. As a result, the general selling pressure — partly related to worries over the Middle East — is misplaced for Unite, as it doesn’t have any exposure.
However, the stock has also been hit by a weaker 2026 earnings outlook released in February. The real-estate investment trust (REIT) outlined softer demand for student housing in some markets, suggesting profits could fall this year. Obviously, this isn’t great and remains a key risk going forward.
This has pushed the dividend yield up from 6.5% at the end of last month to 7.99% now. That’s a 23% increase. More than that, I think the dividend is sustainable. As a REIT, it needs to pay out income in order to keep certain favourable tax treatments. Further, the dividend cover ratio is 1.2. This means that earnings comfortably cover the level of dividends being paid. Finally, let’s not forget that student housing tends to be less cyclical than other property sectors because demand comes from universities. So, with a long-term investment lens, I think this could be a good income stock to consider.
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Dividend pressure
Not all increases in yield mean that the stock is a great dividend purchase. For example, take Marshalls (LSE:MSLH). The dividend yield has popped from 4.3% last month to 5.34% currently.
The share price fall of 20% in the past month compounds the 41% drop in the past year. It has struggled due to a slowdown in the construction and housing markets. Interest rates in the UK haven’t fallen as quickly as many had expected over the past year. Further, concerns about higher inflation due to the spike in oil prices means investors have repriced their thinking for any cuts in interest rates this year. In fact, I’ve heard talk of raising interest rates to combat inflation! This would hurt Marshall’s future as it could cause mortgage rates to increase, putting off new buyers.
As for the dividend, the company already cut its interim dividend by about 15% last summer. With profits declining, I doubt it will increase any time soon. Therefore, the high dividend yield needs to be treated with caution.
I could be wrong. The company is pushing hard for cost savings, which could act to ease financial pressure. If the Middle East conflict ends quickly, we could see consumers more confident about making large purchases, such as property. However, it’s not an income stock I’d consider right now.
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Jon Smith 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.
