I still can’t get over the fact that solid FTSE 100 players like BP (LSE: BP), Centrica (LSE: CNA), GlaxoSmithKline (LSE: GSK), Royal Dutch Shell (LSE: RDSB) and Vodafone (LSE: VOD) all now yield 5% or more… while cash gives savers a near-zero return!
Too many savers fail to realise how much income they could generate by taking a bit of extra risk with their money, plus the scope for capital growth as well.Â
So which of these five stocks are your best income options?
BP
The plummeting oil price has hit BP, whose shares are down 12% in just three months. But that’s good news for income seekers, because a lower share price means a higher yield. Today, you get a juicy 5.3%.
This is riskier than leaving your money in the bank, with Deepwater Horizon legal wrangles dragging on interminably, and BP’s 20% stake in Kremlin-controlled oil enterprise Rosneft succumbing to sanctions.
If you can accept these risks, today’s valuation of just 5.6 times earnings may be a good entry point for long-term investors.
Centrica
British Gas owner Centrica offers an even more generous income of 5.8% a year. Again, a falling share price has helped, with the stock down 17% in the last year, over fears that Labour leader Ed Miliband will punish utility companies if he wins next May’s election.
But these fears are priced in, with Centrica trading at 11 times earnings, and its electric income will keep savers warm this winter.
GlaxoSmithKline
Pharmaceutical giant GlaxoSmithKline is yet another FTSE 100 income hero to stumble, its share price down 15% in six months on the Chinese bribery scandal and falling sales.
Today’s price of 12.6 times earnings looks tempting, especially since it secures you an income of 5.5% a year. And there is scope for capital growth, with profits set to flow from its R&D pipeline.
Royal Dutch Shell
Anglo-Dutch oil major Royal Dutch Shell has had a less turbulent year than BP, yet its share price is still down 9% in three months, largely on the oil price slide.
Shell is more expensive than BP, at 14 times earnings, and its dividend is slightly lower at 5%. But it pumps out cash, posting a $6.1bn profit in the second quarter alone, and looks a lot less risky than its rival right now.
Vodafone
Telecommunications giant Vodafone is another UK blue-chip going cheap, down more than 9% in six months. This really is a great time to go shopping for stocks.
Vodafone is throwing off enough cash to splurge $19 billion on its Project Spring revamp, but still has enough left over to pay you a generous income of 5.52% a year.