Every few months this column looks at shares you might buy for income – reliable dividend-payers with tasty yields. I'll revisit them in a future column, but there is another way of getting income, if that's your thing, namely through bonds.
These have never been easier to access for the private investor, with the London Stock Exchange offering a dealing facility and companies keen to take advantage by offering products in realistic sizes, sometimes as low as £100 although £1,000 is more common.
Since its launch companies have raised £3.46bn through issuing 38 retail bonds on the platform and trading is active enough to allow you to get out should you need to cash in your funds. You will, however, need a stockbroker.
There are a number of advantages to this sort of investment; bonds which mature in five years or more can go into an Individual Savings Account or a Self Invested Personal Pension (SIPP) for a start, keeping the yield out of the taxman's hands.
Typically that yield will be pretty good, compared to what you might get from a bank deposit. A cursory glance down the list shows coupons ranging between 4 and about 6.5 per cent. There are one or two index-linked versions – and if that tickles your fancy I like the look of Severn Trent's 10-year offering.
Why? Utilities tend to carry a lot of debt but despite being fairly tightly regulated still manage to turn healthy profits and pay rising dividends. Consumers could argue that, despite recent signs it has some backbone, Ofwat isn't anything like tough enough with its charges. By contrast, that's good news for investors.
The downside is bonds like this tend to trade at a sizeable premium. High-quality corporate bonds are handy things to have for their yield, and most are trading at above par right now. However, even while that will depress your yield, the fact is that interest rates in this country will likely remain very low for quite some time. So these bonds are still worthwhile.
Despite the fact that most of the issuers are either blue chip companies, or near to being blue chips, a bit of research into their financial position, and corporate governance, is wise. Bondholders rank above shareholders if things get nasty, but you only need to look at what has happened with Co-op Bank (where the bonds are being converted into equity representing 33 per cent of a recapitalised bank still under the control of a Co-operative Group which mucked it up) to see that.
My own view would be to avoid building societies and insurance companies and banks not named HSBC (which has such a vast store of deposits that it's pretty low risk).
City watchdogs have made it very clear (with some justification) that it is no longer on for bank bondholders to get off scot free when things go bad and the taxpayer is called in. So Co-op may not be the last situation where bondholders get burned.
As for insurers, given the myriad ways they report earnings it's hard to get a handle on what's going on sometimes, and they are not the most forthcoming of institutions.
My preference is for utilities, and companies with stable, predictable earning streams. So a food retailer like Tesco qualifies but Tesco Bank, which has also issued bonds, not so much. Oh, and the London Stock Exchange which provides a utility-like service for the City.
Of course, not all bonds are tradeable on the Exchange. With institutional funding hard to find, a number of businesses have sought to whet the appetites of smaller investors such as you and me, but outside the confines of the Exchange's bond trading platform, which imposes fairly strict regulation on issuers.
Some have proved quite popular. The Jockey Club, for example, raised £24.7m to help fund redevelopment of the iconic Cheltenham racecourse. Hotel Chocolat hoped to raise £5m for expansion, and came away with £3.7m.
The latest is Naked Wines, which backs new and upcoming winemakers and has reported strong demand for its bond.
All these offers tend to come with generous interest payments. The Jockey Club offered up to 7.75 per cent, Hotel Chocolat 7.29 per cent and Naked Wines a whopping 10 per cent. But to get the top rate you usually have to accept part or even all of your income in product. In the case of the Jockey Club this meant "racing rewards" – tickets and trackside hospitality. Hotel Chocolat offered (unsurprisingly) chocolate while Naked Wines pays in wine (you get 7 per cent otherwise).
These are really enthusiasts' savings products (having tasted its product, Naked Wines has made me one) for investing only with money you can afford to lose.
Unfortunately there is also the problem of tax. They are not typically eligible for ISAs and for higher rate payers that's an awful lot of your return ending up with HMRC.