If I can buy a FTSE stock that can pay me generous income via dividends and has a share price that’s rallying higher, I get the best of both worlds.
Combining income and growth is rare. Usually, high growth shares don’t pay out dividends. Alternatively, mature income stocks often don’t have great growth potential. But here’s one idea that seems to have broken the norm.
The income story
I’m referring to the Henderson Far East Income (LSE:HFEL) stock. The name gives away two important pieces of information. The first is that the investment manager is Janus Henderson. The second is that the fund focuses on investing in the Asia Pacific region.
Over the past year, the stock’s risen 11%, with the current dividend yield standing at 10.34%. Usually, a high yield’s driven by a falling share price, which is a bit of a red flag. However, this isn’t the case here.
When I look at the history of the dividend per share payments, the quarterly income has been steadily ticking higher. For several years now, it’s increased by 0.1p a year and is now 6.20p per share.
The company notes that it tries to achieve such high income through using “regional expertise” when it comes to stock picking in Asia. It also uses leverage, meaning that returns (but also risk) can be increased.
One risk I should flag is that the dividend cover over several years has been around 1. This means that the dividend’s completely covered by the latest earnings, but there’s not really any room for a bad year!
Share price gains
Some of the largest holdings in the portfolio are from China. This includes the likes of Oversea-Chinese Banking, China CITIC Bank and China Construction Bank. Over the past month, Chinese stocks have jumped following a new round of stimulus efforts from the government. Although it’s too early to tell if this will really spark an economic surge, the stock market certainly has felt the benefit.
Another reason for the move higher is that the largest holding is Taiwan Semiconductor Manufacturing. The strong ties to artificial intelligence (AI) has caused this share to jump 116% over the past year alone! So it’s been a great pick that’s helped the overall portfolio to rally.
But there’s a long-term concern here. Large exposure to China hasn’t been the best move if I look back over a longer period. Over three years, the stock’s down 21%. I do have some exposure to China, but it isn’t the safest place to allocate a lot of money, in my view.
Striving for perfection
I really like the stock. It’s not perfect, but it’s certainly a rare example of a stock that can offer both great income and growth prospects. Given that I already have enough exposure to China, I don’t feel comfortable adding this to my portfolio right now. However, if I didn’t have any ties to Asia Pacific, I’d be seriously thinking about buying.
The post With a 10% yield and a rising share price, is this the perfect FTSE stock? appeared first on The Motley Fool UK.
Should you invest £1,000 in Henderson Far East Income Limited right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Henderson Far East Income Limited made the list?
See the 6 stocks
More reading
How I identify dividend income opportunities with growth potential on the FTSE 250
2 UK shares I’d be happy to own if the stock market closed for a decade
Will the BP share price hit 500p in the next year? Here’s what the experts say
HSBC’s share price looks a bargain to me anywhere under £16.46
£7,000 in savings? Here’s how I’d aim for nearly £3,200 a month in passive income
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Taiwan Semiconductor Manufacturing. 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.
