For many of us, a second income is the holy grail of investing. Whether we’re looking for a second income this year, or in 20 years, it’s a goal worth working towards.
So why do I think now could be a once-in-a-decade opportunity to earn a second income? Well, despite rising share prices, dividend yields in some sectors are very strong.
And of course, dividend yields and share prices are inversely correlated. When share prices rise, dividend yields go up. So here are two stocks with great, possibly peaking, dividend yields.
Phoenix Group
Phoenix Group (LSE:PHNX) is a favourite of mine, offering a 10.2% dividend yield at the current price. The lower share price and elevated dividend yield partially reflect the fact that capital has moved towards cash savings and debt as interest rates have pushed up.
As such, with interest rates due to start falling, we will likely see capital move back towards dividend-paying stocks like Phoenix Group over the next year. Resultantly, the mega dividend yield on offer today probably won’t be available for long.
Insurers are often good dividend payers because they operate in a mature market and they have strong cash flows. Think about it, with all of us paying our insurance premiums on a monthly or annual basis, these companies are rarely short of cash.
Inflation has been a major challenge for the insurance industry with claims inflation eating into margins. And we’re not out of the woods here. This, coupled with Phoenix Group’s higher leverage ratio versus its peers, represents something of a risk.
Nonetheless, I still believe now could be a great time to look at Phoenix Group — I’m considering buying more although capital is currently limited. It’s a dividend king with a strong track record of increasing its dividend payments.
Nordic American Tankers
Nordic American Tanker (NYSE:NAT) currently offers a 11.2% dividend yield, but analysts think that could rise to to around 15.5% this year with the dividend payment potentially hitting ¢65 per share.
As the name suggests, it’s a tanker company. And this is a sector experiencing a significant upturn in fortunes following the pandemic.
There are several reasons why we might be at the start of a multi-year supercycle, and one of those is a dearth of new tanker orders made during the pandemic. These are Goliaths of the ocean and contsruction can take up to five years.
As such, there’s a lack of good quality supply in the tanker market. This has been made more acute by the Panama Canal drought and attacks by Houthi forces on ships sailing through the Bab el Mandeb.
Both these events have meant that vessels, either due to re-routing or being stuck in huge queues, are taking longer to reach their destinations. In other words, there’s even less supply on the market. And less supply means tanker companies can charge more, way more. Day rates are up as much as five times versus historic averages.
The only issue is that Nordic American doesn’t have the newest fleet, and this means it can miss out on the super prime contracts with like Exxon and Shell. But I think it’s worth doing further research on the stock.
This post was originally published on Motley Fool
