Life company L&G is one stand-out among the best covered high dividend paying stocks. Its 5.6pc yield is substantial and its dividend payouts have also grown by 23pc in the past five years.
Michelle McGrade, chief investment officer at investment platform TD Direct, explained that a high yield is usually a sign for caution, so it’s important to look at the specific risks for each stock, prospects for growth and why the yield is high.
She said: “In the case of Sainsbury’s, the company has strong cash flow, but it is under pressure due to intense competition among supermarkets. It depends whether you expect Sainsbury’s to survive the current conditions.
“L&G has grown profits every year, but it is affected by the negative sentiment towards insurers at present. This looks like an opportunity to me.”
How well covered are the best yielding stocks?
The data for the best yielding stocks reveals how risky a 6pc yield is at present.
The two tables below both show the highest yielding stocks, but the second discounts those with negative dividend cover.
Only five companies in the FTSE 100 yield more than 6pc, and none of those has a dividend cover score of above 1, with three posting negative dividend cover.
In fact, out of the 12 companies yielding more than 5pc, only two have dividend cover of more than 1. That means the other 10 are paying out dividends that aren’t covered by profits.