With the base rate held at just 0.5%, the stock market is looking more attractive than ever. Regain your sense of adventure with these five large high-yielding shares.
The Bank of England has kept interest rates on hold at a paltry 0.5%. It's great news for people on standard variable rate (SVR) mortgages. But if you are one of the roughly 19 million households who either have no mortgage, or are on something other than a SVR mortgage, it makes no difference to you at all, at least for now.
In fact, the people hardest hit by the cut in base interest rates are those people with savings. Interest rates on the even the best savings accounts are down to 2.5% per annum, and even then that's often only an introductory offer.
At an interest rate of 2.5%, a significant sum of £50,000 will earn you the princely sum of £1,250 per year, before tax. For people who have already paid off their home loans in full, it's enough to make them think about taking out a mortgage on their house at 3.5%, or even less, and taking the money and investing it into the stock market.
Out Of The Box Strategies For Unprecedented Economic Times
Before you think about that too much more, and lest anyone thinks I'm seriously recommending that strategy, rest assured I brought it up as an example as to how these historically low interest rates encourage people to look 'out of the box'.
To me, compared to savings rates of 2.5%, it once again highlights the attractiveness of high yielding shares for people with spare money.
Sure, shares are risky. You can lose your capital. Sure, the economy is in the dog house, and no-one, but no-one, knows how long this recession is going to last.
The Undeniable Facts
But look at these undeniable facts…
- millions of people are employed now, and will be employed throughout the length of this recession;
- millions of households have received the mother of all pay rises, courtesy of plunging mortgage rates. Sure, some people will use the extra money to pay off their mortgages quicker, but for others, it will be burning a hole in their pockets. They'll either spend it, hence boosting the economy and helping end the recession, or they'll invest it, likely in the stock market; and
- pension funds are also hardly excited by the prospect of earning 2.5% interest on your retirement money. Recently they've been rushing to the safety of government bonds and corporate bonds. But the returns on each of those asset classes has become lower and lower, and soon pension funds will surely again turn to the share market.
The Thrill Of Stock Market Investing
So what's it to be? The safety of keeping your money in the bank earning 2.5%? Or the excitement and thrill of investing it in the stock market, earning a dividend yield of 5% or 6%, and with the prospect of capital appreciation?
Where's your sense of adventure? Your sense of risk?
I'm not suggesting you punt it on smaller companies, although that too is an option, as there are some very attractive, lower-risk, dividend-paying smaller companies out there in stock market land -- you can take up a free 30-day trial to The Motley Fool's Champion Shares premium stock picking service to get instant access to a selection of such outstanding companies.
Another option is to invest in large, stable companies, like these five high yielding FTSE 100 companies, for example…
| Company | Recent Share Price | Market Cap | Forward Dividend Yield |
|---|
| Rexam (LSE: REX) | 298p | £1.9b | 7.1% |
| Thomas Cook (LSE: TCG) | 203p | £1.7b | 6.1% |
| Home Retail Group (LSE: HOME) | 262p | £2.3b | 5.4% |
| Imperial Tobacco (LSE: IMT) | 1588p | £16.1b | 5.4% |
| J Sainsbury (LSE: SBRY) | 312p | £5.7b | 4.7% |
It's not exactly rocket science, but with bank interest rates at just 2.5%, you don't have to be a rocket scientist, or an investment writer for that matter, to find big solid companies yielding more than that.
Just say no to 0.5% interest rates.
More on the economy and the markets:
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> This article was first published on 6 February 2009. It has been updated. Bruce Jackson does not have an interest in any of the companies mentioned in this article.
