Investment View: If you're seeking income, start with the Footsie's top-yield shares

With interest rates in much of the developed world close to or at zero, holding money in cash is a recipe for penury.

Bonds aren't much better – those that look low risk (like British gilts and maybe German bunds) provide pitiful yields. Cracking rates of return can be obtained from, for example, Italian or Spanish debt. But betting one's personal wealth on them – even if Standard & Poor's still rates them as investment grade – is another matter entirely. They make the stock market look like the epitome of safety.

They do offer a lesson for investors though: both give stonking yields and that is because they are risky. The yields come at a price: you could lose your capital.

The same is true of some of the top-yielding shares.

With the help of Thompson Reuters, I looked at the top-yielding shares from the FTSE 100, which, with bigger, more established and (hopefully) safer companies than the second-tier FTSE 250 or anything beneath it, should be the starting point for those who are seeking income.

Hedge fund manager Man Group offers the best prospective yield (based on next year's forecast earnings) on the index – a stunning 13.4 per cent – but illustrates the point about yields: some are high because the entity that offers them is doubted.

Man's yield doesn't look sustainable because its benchmark AHL Diversified fund hasn't been performing well. The City fears its investors will up sticks and Man will struggle over the next few years.

Those willing to speculate might see some worth in gambling on shares that now trade close to 11-year lows. Income seekers should avoid. Anything offering 10 per cent (or something close to it) has to be handled with care.

So what of insurer Admiral, yielding 9.1 per cent? This column said sell in March and that proved to be the right call.

A profit warning has called into question Admiral's much-vaunted underwriting, and personal injury claims are rising. There might be an argument for buying the shares if the group's founder, Henry Engelhardt, can steady the ship (he needs to). After all, profits haven't evaporated, they're just growing more slowly. Trouble is, a first profit warning is often followed by a second, and frequently a third.

Royal & SunAlliance might just be the safer bet. It too faces numerous issues but feels much more solid than Admiral while offering a a similar yield.

In the life sector we'd recommend Aviva. There are questions about management, and the group would be worth more broken up than it is as a conglomerate. But it is financially strong, and fears over its Italian business are overstated. Buy for the 8.84 per cent yield. The shares are cheap.

Those with concerns about Aviva could do worse than Legal & General (6 per cent prospective yield) which, while it is hunting for a new chief executive, is stable, financially strong, and has nice growth prospects to add to that income.

Icap, the broker, has taken a bit of a buffeting, but Michael Spencer, its founder, is a rare chief executive – he's worth the money.

Trust him to keep the company healthy enough to maintain a 6.4 per cent yield, not least because much of his personal wealth is tied up in the business.

Utilities and energy firms at the top (Scottish & Southern Energy, Centrica, United Utilities and National Grid) aren't necessarily cheap on earnings multiples and are under pressure over price from regulators. Of them, water operators look preferable, given they have at least achieved a settlement with their watchdogs.

So at 5.5 per cent United Utilities is worth a look. Shell, at 5.1 per cent, also looks a safe bet given global demand for oil.

However, while the supermarkets (and Marks & Spencer) might generate good cashflows to back their divies, the consumer squeeze makes them best avoided. It might also be best to duck commercial property companies such as Capital Shopping Centres and British Land. Avoid BAE Systems, too. It is threatened by cutbacks.

Suggested Topics
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

(Junior) IT Systems Administrator / Infrastructure Analyst

£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

Finance Officer

Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

Accounts Payable

£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

Technical BA - Banking - Bristol - £400pd

£400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice