Cash ISAs have been a popular savings product for a long time. But the reality is that 10 years of low interest rates have left these tax-free accounts looking pretty pointless.
At the time of writing, the top interest rate I could find for an instant access Cash ISA was 1.35%. With UK inflation running at 1.5%, this interest rate means the purchasing power of your cash is actually falling each year.
I think it’s sensible to keep some savings in cash, for emergencies and major expenses. But in my view, cash saving is no longer a practical way to generate income or build wealth. That’s why I invest most of my long-term savings in the stock market.
Today, I want to look at four income stocks from the blue-chip FTSE 100 index, including three from my own portfolio. Together, I reckon these could provide you with a 6.9% cash income this year.
A turnaround buy?
Shares in tobacco group Imperial Brands have risen by around 17% since the Conservative election win in December. Despite this, the stock remains relatively unloved by the market, even while offering a cash-backed 10.9% dividend yield.
This tobacco business remains very profitable and generates huge amounts of surplus cash each year. Although the firm’s incoming new chief executive will be under pressure to cut debt, this payout still looks affordable to me.
Prime property
Another stock I rate as a reliable long-term source of income is property group British Land. The group’s portfolio is split into two main categories — prime London office developments and major shopping centres around the UK.
Retail property is going through a tough patch at the moment. But British Land’s properties are among the biggest and best in this sector, which should make recovery easier. In the meantime, the shares trade at a 25% discount to their book value of 856p and offer a dividend yield of 5.2%. I’ve been buying.
There’s a new boss in town
It’s been a long time since Royal Bank of Scotland Group could be described as an income buy. But I think the group now deserves this label as much as some of its more popular peers.
The bank’s profitability has gradually been improving and shareholders are expected to receive a total dividend of 14.9p per share in 2020, giving a yield of 6.2%. New boss Alison Rose appears to be determined to fix underperforming parts of the business. I’m happy to hold and believe further gains are likely over time.
Safer than houses
I’ve steered clear of housebuilding stocks as I’m struggling to believe their current level of profitability will be sustainable. I may be wrong. But one stock I do view as a reliable long-term bet is utility firm National Grid.
Among UK investors, the business is best known as the operator of the UK’s electricity grid. But about half National Grid’s profits now come from its US operations, which should help protect shareholders from localised problems in either country. Investors buying the shares today should be able to lock in a 5.2% yield.