Every month for the last seven years, the Bank of England’s monetary policy committee (MPC) has dutifully assembled to discuss whether it should hike interest rates and every month the press has dutifully reported exactly the same decision: not this month, chaps.
Low rates forever
The whole thing is a charade. You wonder how everybody summons up the energy. There has been the odd flash of ‘excitement’ as more hawkish MPC members such as Andrew Sentence, Martin Weale and Ian McCafferty briefly vote for a hike, but it never lasts. Around 18 months ago I suggested that “interest rates will stay low forever” and history seems determined to prove me right. Nobody is talking about a rate hike now. In fact, negative rates seem more likely. All of which is poison for savers, endless poison.Â
Right now, if you want more than 1% on your savings, you have to lock your money away for several years with a challenger bank you’ve probably never heard of. If you find that tempting you had better act fast because rates are forecast to fall again as markets accept that the MPC won’t lift rates until 2020 at the earliest.
Reap this reward
Enough moaning about dreary old savings, because there’s a happier story to tell. Dividend-paying stocks offer an antidote to today’s savings poison, and can spare savers another lost decade. Right now, the FTSE 100 offers an average dividend yield of 4.2%, crushing the returns on cash. Better still, most companies remain wedded to progressive dividend policies, which means that dividends should rise with inflation or better over the years.
That doesn’t mean all is sunshine and party hats in the world of dividends. Last year, Antofagasta, Centrica, Glencore, WM Morrison, J Sainsbury, Standard Chartered and Tesco all cut or cancelled their dividends. Rolls-Royce Holding brandished a knife last week. Mining giant Rio Tinto paid its full-year dividend but investors can no longer bank on progression. The BHP Billiton dividend could be next for the chop.
Low prices, high income
Happily, there are still plenty of electric dividends out there, as the share price rout forces up yields. British Gas owner Centrica, for example, cut its dividend but is still forecast to yield 5.9% by December. Asia-focused bank HSBC Holdings yields a mighty 7.45%. Pharmaceutical giant GlaxoSmithKline yields 5.87%. Legal & General Group yields 5.68%. Vodafone Group yields 5.50%. Royal Mail Group yields 4.98%. Most seem likely to survive the current cull.
You need a little courage to go shopping for stocks amid the current market disarray, but brave investors should be handsomely rewarded in the long run. Many FTSE 100 companies were arguably overvalued but the recent correction has brought them back into line. Buy today and you can wait patiently for the recovery while reinvesting those dividends for yet more growth. That should be far more rewarding than watching your money die a slow death in the bank.