The search for income has never been harder than it is today. With prospects for the first base rate hike now receding, that isn’t going to change soon.
It has been a traumatic five or six years for savers, but this only serves to throw the value of company dividend payouts into even sharper relief. For investors, this is your best income option today.
UK-listed oil giants BP (LSE: BP) (NYSE: BP.US) and Royal Dutch Shell (LSE: RDSB) offer some of the most attractive dividends on the FTSE 100, both paying at least 10 times base rate.
Their dividend yields are gold, pure black gold. And now could be a good time to top up your tank.
BP Or Not BP?
If you buy BP today, you are locking into its current yield of 5.3%. Better still, this is forecast to hit 5.6% in December, and 5.9% one year after that.
That’s the beauty of dividend payments. If management pursues a progressive policy, as BP’s does, your dividend payouts will rise in value, year after year, helping your money keep pace with inflation.
BP’s dividend is worth 8.3% more than one year earlier.
Over the same period, the interest rate on the average savings account has risen a meagre 1.5%, from 0.66% to the princely figure of 0.67%, according to Moneyfacts.co.uk.
Sure Of Shell
Today, Shell gives you a 5% yield. Again, that is forecast to rise, hitting 5.3% by December 2015. This puts it comfortably above the FTSE 100 average yield of 3.6%.
Management policy is also progressive. Its Q1 2014 dividend of $0.47 per share is up 4.4% year-on-year.
Now could be a good time to buy into Shell’s juicy yield, with the share price down 9% in the past three months. That means you’re getting it at a fat discount, despite a whopping 33% rise in Q2 profits to $6.1bn.
Dash From Cash
Company dividends aren’t guaranteed, of course, but neither is the return on cash. Two years ago, the average savings account paid 1.04%, an astonishing 36% more than you get today.
That’s worth bearing in mind, if you’re worried that BP’s Gulf of Mexico ongoing legal saga will force it to cut its dividend payout again.
BP and Shell aren’t too expensive either, trading at forecast p/e ratios of 9.4 times and 9.9 times earnings respectively for December 2014.
High income going cheap? In today’s low interest rate world, that’s priceless.Â