Derek Pain: When the return on savings is derisory, it's time to take stock
No Pain, No Gain
Saturday 04 September 2010
In these days of derisory interest rates, the stock market offers some rewarding opportunities for any investor seeking a more reasonable income. Rarely have savings been so poorly serviced. Such are the paltry returns available on the high street – and on the internet – that anyone with cash tucked away in many saving accounts is, allowing for the impact of inflation, actually losing out.
Yet high-yielding shares adorn the stock market. And it is not necessary to seek stocks with dodgy stratospheric returns and run the implied risk that problems are just around the corner. For example, the average return on top shares is about 3.5 per cent although down among small caps the figure is considerably less than 1 per cent. Variable dealing costs distort possible yields but for the buy-and-hold investor their impact need not be too significant.
The income-seeking share buyer should concentrate on blue chips where there is at least a good chance of exceeding the prevailing miserable interest rates that could last for some years.
I realise the misfortunes that have engulfed BP have left a gaping hole in the dividend payments many small shareholders – and institutions – were banking on. The oil company's enforced decision to stop paying anything to its shareholders until the Gulf of Mexico disaster no longer drains its resources is undoubtedly a blow to the dividend-orientated community. It was a major provider of shareholder cash and its disappearance from the dividend list leaves the investment world much poorer and no doubt casts a shadow over the argument that the stock market can offer a reasonable and relatively safe, inflation-beating return.
But two points should be made. One is that a BP-style disaster is a rarity; the other is that shareholders have not lost all their capital and, in the fullness of time, their shares should recover and dividends start to flow again. In addition, bid possibilities linger.
High- street savings accounts were, until recently, regarded as safe havens. But events in the past few years have destroyed such complacency. So why put up with such doleful interest rates? It must be worth considering blue chips as an alternative for at least some savings – but, perhaps, not all – as more than double the usual high street return is available. United Utilities is a relatively safe haven and its shares yield about 6 per cent.
I suppose it could encounter some disaster but then, as recent history proves, so could staid and ancient savings institutions.
Other top shares with dividend appeal include Vodafone, offering 5.5 per cent and British American Tobacco with 4.5 per cent. I doubt if the world will, in the near future, cut its mobile usage or stop smoking. So those yields look pretty secure. Other blue-chip high-yielders include BT and Glaxo SmithKline.
The No pain, No gain portfolio's two Footsie stocks offer less attractive returns although still comfortably beating the high street. G4S, the security behemoth that last week produced half-time pre-tax profits of £142.6m (against £129m) and increased its dividend, is probably on about 3 per cent and Whitbread returns some 2.7 per cent.
The portfolio does contain two high payers. Marston's, the brewer capitalised at £527m, sports a 7.5 per cent yield but, as I mentioned last week, a dividend cut is likely. Even so, I would expect the adjusted return to outscore the high street. And there is also the redoubtable Printing.com, the printer with a capitalisation of only £17.3m that has distributed more than £6m to shareholders in its five years on the Aim market.
The shares, around 39p, yield more than 8 per cent. As I said in July early indications suggest profits will emerge near to last year's £1.7m and a same-again year's dividend of 3.1p a share will be paid. The company, which has a retail network feeding its Manchester plant, clearly offers a remarkable return in these low interest rate days.
But, despite its record, some wonder whether it can continue to survive recessionary pressures and could be forced into dividend slicing. Yet at the last count it had £2.1m in the bank. It provides frequent trading updates so any problems should be visible more quickly than at other companies – whether fully listed or on Aim.
Compare with the Independent: See how much you could save by switching credit cards. Compare now
MPs warn that carbon bubble may hit savers
Make money as a mystery shopper
How to start your own internet business
Five ways to make money on the internet
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 International Women's Day 2014: The shocking statistics that show why it is still so important
- 2 Australian man Rod Sommerville reacts to bite from deadly snake by reaching for cold beer
- 3 Teacher shows sex tape featuring herself to pupils during class by mistake
- 4 Singapore sting: Sky-high prices are pushing locals to the edge of affordability
- 5 Swarm of killer bees sting woman 1,000 times
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...
Day In a Page
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew