The income hurdle for UK investors to beat is 3.2%, which is the prospective yield from the FTSE 100 according to Stockopedia data. Buying a simple FTSE 100 tracker fund will give you access to the index and therefore the yield. But how easy it is to beat this figure? It’s simple if you’ve got time to research the market.

Any good screening system will tell you the names of stocks with yields above a certain level. In doing so, you’ll have a list from which to start narrowing down the names to find those capable of sustained dividend payments. Just remember that dividends are not guaranteed payments and can be cut or cancelled at any time.

Most investor guides or books will talk about earnings cover, which is how much the earnings per share of a company covers its dividend payments. The higher the cover, the easier it is for the company to pay the dividend and be able to pay higher dividends in the future.

The downside of this metric is that the earnings per share figure can be manipulated. It’s worth also looking at cash flow as cash funds the dividend. Free cash flow is the cash generated from operations minus money used for capital expenditure.

Using SharePad, Shares has built a screen to look for stocks in the FTSE All-Share index that yield 3.2% or more, and which have both earnings per share dividend cover (forecast) and free cash flow dividend cover (historical as forecast data not available) of more than 1.2 times.

We have also stipulated at least 11% share price gains over the past 12 months, being the return from the FTSE All-Share over that period. For this exercise, we felt it was important to at least keep pace with the broader market.

Quite often you’ll see a stock with a high yield which is purely the result of a falling share price. The stock is down because investors do not believe the dividend forecast is achievable – a falling price will push up the prospective yield. We want to steer clear of such companies.

Our screen provides a list of 54 names. One stock that stands out is legal services group DWF (DWF) which has a 5.5% prospective yield. While its share price has already done very well in the past year, we note two brokers recently issued positive comments.

On 21 July, Shore Capital said a re-rating looked ‘overdue’ as previous problems are now being addressed by new management. It added: ‘Our forecasts imply a 2022 financial year PE of 10.6 and an EV/EBITDA of 7, which compares to the peer group average of 17 and 11 respectively.’

At the same time, Liberum moved from ‘hold’ to ‘buy’, saying DWF’s management had proved they could meet expectations and that it had more faith in the equity story.

If you’re looking for more income ideas, this article explores stocks and investment trusts expected to yield 5% or more.

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