There are better options out there than Bitcoin or gold in torrid times. Jittery investors grasp for safe havens in times of stress because they expect these commodities to be uncorrelated to the rise and fall of equity markets — although the extent to which this is true for cryptocurrencies has not yet been proven.
Neither option offers dividends to help your portfolio outpace inflation and neither produces anything of merit, requiring a greater fool to come in and pay more in the future than you believe they are worth.
Steady gains
Two FTSE 100 dividend stocks I’ve bought for my Stocks and Shares ISA that I think make sense are Legal & General (LSE:LGEN) and GlaxoSmithKline (LSE:GSK).
Over the last five years, pharmaceuticals giant GSK has paid a rock-solid 80p dividend (barring an additional 20p special dividend in 2016). A trailing P/E ratio of 14 means it’s not dirt cheap, but for a popular blue-chip share, anything a lot lower would be a little suspicious.
A forward P/E ratio of 7 suggests earnings are expected to fall slightly next year, but I’d much rather rely on the GSK than a risky punt elsewhere. The potential for 5% dividends for the rest of my natural life? I’ll take that over 10% one year and nothing the next.
Earnings per share have consistently beaten market estimates by between 7% and 20% over the last 18 months. A strong pipeline of clinical cancer medications, including belantamab mafodotin for myeloma treatments, also bodes well for the future. GSK had sold off that portion of its business to Novartis in 2014 but set out its stall for a comeback by buying the rights to German firm Merck KGaA‘s immunotherapy medication as well as spending $5bn in a takeover of American oncology drug developer Tesaro.
Legal & General’s profits rose this year as global annuity sales hit record levels. The insurance industry as a whole tends to do well whether the seas are choppy or fair, so I say if you don’t have this 7% payer in your SIPP or Stock and Shares ISA, it’s time to put up a sail and watch the dividends breeze in.
A 20% return on equity means LGEN is using its investments well to return profitable earnings growth. CEO Nigel Wilson boasted that winning a £4.6bn pension risk transfer deal with Rolls-Royce displayed the multinational’s “capacity to create and source long-term direct investments at scale“, followed by “terrific performance” in 2019’s half-year results. In real money, that equates to earnings per share up 13% and operating profits up 11%. As a high-yield, low risk, long-term play this stock makes perfect sense to me.
Still going for gold?
If you’re dead set on adding some gold exposure to your portfolio, you’ll pay a premium as the price of the precious metal has hit a five-year high. You can buy gold-based ETCs (exchange-traded commodities) in your Stocks and Shares ISA and you might want to consider the UK-based iShares Physical Gold ETC to add the diversification you’re after.
Still, I’d wager a FTSE dividend tracker is a better income bet. One of the most popular, with a headline yield of 6.85%, is the iShares FTSE UK Dividend fund. This is a basket of some of the top UK dividend-paying companies including Standard Life Aberdeen, Evraz, Vodafone, Persimmon, WPP and Crest Nicholson.