Weak economic conditions are often followed by lower interest rates. And current conditions certainly are weak. According to the latest data, the UK economy shrank by 0.3% in November, and barely grew in the three months prior. Interest rates are already low, but they could edge even lower if the economy doesn’t pick up quickly now that the Brexit limbo has been broken.
As some of my Foolish colleagues have pointed out, this is the time to steer clear of popular investments like Cash ISAs. The available interest rates are way too low and not likely to rise much any time soon.
Lloyds has taken too many hits
It’s also a bad time for banking stocks, like the hugely popular Lloyds Bank (LSE:LLOY), because the financials sector is closely linked to economic activity. Economic weakness, coupled with the hit from PPI claims on Lloyds’ profits in the past quarters, has taken its toll on the bank’s share price. It’s no wonder that the LLOY share price at last close was 58.7p, very nearly the lowest levels seen in a year.
Even before these developments, the bank’s share price had been following a flat trend in recent years. There have been several opportunities to invest in Lloyds at a relatively low price, hold the shares for a few years, and then sell when the price was relatively high. But that calls for active investing, which isn’t everyone’s cup of tea.
Lloyds’ dividend yield of 5.5% isn’t bad, but it’s not the most competitive either. I’ve been bullish on the bank in the past and continue to believe that its share price will rise as the economy improves. But I reckon its current circumstances mean there will be more opportunities through 2020 to buy at relatively low prices.
Royal Dutch Shell is one for the income investor
Instead of Lloyds Bank, I suggest another FTSE 100 stock, one that I have liked for some time now. Oil giant Royal Dutch Shell (LSE:RDSB), along with other companies in the segment, comes sharply into focus whenever there’s an increase in tensions in the Middle East. The RDSB share price has subsided quite a bit from the start of the month, when recent concerns escalated. This isn’t the first time that the Shell share price has seen sharp movements. But, over time, these sharp ups and downs smooth out into a flat trend line, much like in the case of Lloyds Bank.
But if I’m looking to generate passive income, then this is an ideal situation for the share price, with its dividend yield of 6.3%, because it ensures my yield as I add more of RDSB to my portfolio each year. The fact that it’s a huge, growing and profit-making company adds more stability to this investment. Of course, big oil has competitors that are increasingly making their presence felt, but I don’t think they will be a meaningful threat for the foreseeable future. I think RDSB is a good bet.