Investment: No Pain, No Gain: Our Man's Portfolio: Go for the sound high yielders

THE STOCK market has yet to fully appreciate the country has entered an age of low interest rates. With money rates at their lowest for more than 30 years, and further reductions expected in the next few months, it is surprising to find dotted around the market so many well known and substantial companies with high-yielding shares.

Normally a high return signals at least the likelihood of a cut dividend, perhaps no payment at all or even acute danger. Indeed the higher the yield the greater the risk.

The latest FTSE shake-up underlines the way the market has lost sight of simple attributes such as profits and dividends. The groups bundled out of the blue chip index this week are making handsome, although not spectacular, profits headway and, in the main, increasing dividend payments.

Gallaher, the cigarette group, is one of the ex-FTSE trio. Its shares offer a yield of more than 7 per cent. In part this is due to the realisation over recent weeks that the group's FTSE status was under threat with the consequent erosion of confidence as FTSE tracker funds bailed out.

But not so long ago 7 per cent indicated all sorts of possible disasters. Yet Gallaher is trading well. Although profits were down, the cigarette company still made pounds 318.6m and should do better this year. More importantly it will have no trouble holding its dividend.

Safeway, the supermarket chain, was another FTSE casualty. Here profits should be marginally ahead, say pounds 355m against pounds 340.2m. But the dividends should at least be held, providing a 7 per cent-plus yield. To add to the investment appeal, Safeway has aroused predatory instincts. Asda would have liked to agree a merger, but Westminster's attitude was the stumbling block. And Wal-Mart, the huge US retailer which has been linked with a host of chains in this country and Europe, could settle for Safeway's undoubted charms.

Tomkins, the out-of-favour buns-to-guns conglomerate, also yields more than 7 per cent. The group has cash to burn, hence its current tender offer to mop up pounds 400m.

I am not suggesting any of the three relegated shares are about to go storming ahead. Trading prospects are not sufficiently exciting. It would need a take over bid to light any fire. But any investors who regard a good return as an important part of their portfolio policy should think in terms of the sounder high yielders.

Most of the high yielders are outside FTSE. But FTSE constituent, National Power, offers almost 7 per cent. However its apparent generosity may not be all it seems. There is, in some quarters, a queasy feeling it may in a few years find it necessary to cut its payment. However BT Alex.Brown disagrees. The investment house sees the privatised generator achieving a progressive dividend policy.

In the lower reaches of the market, yields can achieve Ruritanian levels. Even double figure returns lurk. However they are likely to be something of an illusion. A dividend cut is normally to be expected with such an offering.

Little Leeds Group, a textile business, has been offering a fancy return for a long while. Its rating shouted that a dividend cut was inevitable. In the event, it held its payment although profits fell by around a third.

If Leeds, admittedly operating in one of the toughest industries, can hang on again - and there are those who think it will - then it will make the ultra-safe returns offered by special savings accounts like those of, say, the Halifax, look like dead money.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test