The longer the problems in the Eurozone drag on for, the less likely interest rate rises in the UK become. That’s because, while the UK economy is performing well, the Bank of England is unlikely to begin to raise interest rates until they feel that the outlook is relatively certain. And, for savers and income-seeking investors, a low interest rate is bad news because it means that returns are pegged back.
High-yielding stocks, then, are one of the simplest remedies to the problem of low interest rates. And, in this space, there is a great deal of choice in the FTSE 350, with yields well above the best that bank accounts can offer being available. For example, mining company Anglo American (LSE: AAL) currently trades on a yield of 6.3%, which is among the highest on offer in the index. Meanwhile, Anglo American’s sector peer, Glencore (LSE: GLEN) (NASDAQOTH: GLNCY.US), also has a top notch yield of 4.8%, thereby making the two stocks of great interest to yield-hungry investors.
Certainly, share price falls are a key reason why both stocks offer such impressive yields, with Anglo American’s share price having declined by 27% since the turn of the year and Glencore’s having slumped by 18% year-to-date. And, with the mining sector enduring a tough period, many investors may be put off buying a slice of both stocks. However, just because their shares have fallen and their bottom lines have come under pressure does not mean that they are not great income stocks.
In fact, dividends at both companies are highly sustainable. For example, Anglo American’s bottom line is set to rise by 29% next year and this means that its dividends should be covered 1.6 times by profit next year. Similarly, Glencore’s bottom line growth of 54% that is pencilled in for next year should allow it to pay dividends 1.8 times out of net profit. Therefore, while not without risk, the outlook is positive for both companies as income plays.
Similarly, Vodafone (LSE: VOD) (NASDAQ: VOD.US) remains a key income stock for a number of investors. And, with its shares having fallen by 5% in the last month in response to a poor outlook for the Eurozone (to which Vodafone has major exposure), its shares now yield a very appealing 5.1%.
Looking ahead, Vodafone seems to be in something of a ‘win-win’ situation. If the Eurozone improves and begins to prosper, then Vodafone’s exposure to it is likely to be seen by investors as a major positive and its shares could move higher. Similarly, if the Eurozone continues to endure a challenging period, then Vodafone’s strategy of buying undervalued assets in the region should be somewhat easier and improve the company’s long term earnings outlook.
As such, and while neither Anglo American, Glencore nor Vodafone are without risk, they appear to be well-worth buying as income stocks at the present time.
