No wonder these picks are so popular.
Here at the Motley Fool, high-yield shares are a firm favourite. To be sure, oil and mining stocks, small caps and index trackers have their fans, too. But, undeniably, the charms of high yield have perennial appeal.
Yet it's safe to say that some investors look down on high-yield shares as, well, boring. There's none of the excitement of a racy oil explorer, they smirk.
Where's the thrill, they ask, in buying into a global blue-chip such as GlaxoSmithKline (LSE: GSK), BAE Systems (LSE: BA) or BP (LSE: BP), and then simply sitting back and just banking the dividends?
Well, that's true, high-yield blue chips aren't exciting -- or at least, as post-Gulf of Mexico investors in BP will acknowledge, aren't exciting most of the time.
Despite this, I reckon that there are no fewer than five compelling reasons for buying high-yield shares. And, yes, excitement isn't one of them.
Income
First and foremost, of course, there's that glorious yield. Just think: 5% or so, at a time when bank rate is 0.5%, and most savings accounts are paying a negative real rate of interest.
You don't want to chase yields too high, of course. Very high yields may indicate a share price that's been driven down by worries over dividend sustainability, or other concerns. Cable & Wireless Worldwide (LSE: CW) would be an example of this, for instance. But anything a couple of percentage points above the FTSE average should be safe.
Capital gains
Capital gains, from an income share? Indeed: it can -- and does -- happen.
Often, yields are higher than the FTSE average because shares are temporarily beaten down by short-term concerns over something or other. Tesco (LSE: TSCO), for instance, is firmly into high-yield territory for just such a reason. Aviva (LSE: AV) is another example.
And when these concerns dissipate, and the share price rises again, investors find themselves in the happy position of have locked in a high income -- and a decent capital gain.
Total returns
Time and again, studies of the stock market's total return over long periods show that something between two-thirds and three-quarters of overall returns come from dividends.
Not dividends turned into income and spent, of course, but dividends reinvested in more dividend-earning shares.
To you, does that sound like a strategy of buying high-yield shares and then reinvesting the higher-than-average dividends?
It does to me. No wonder DRIP plans in high-yielders such as British American Tobacco (LSE: BATS) perform so well.
Blue-chip security
In the nature of things, some of the FTSE's fattest and tastiest yields are in the upper reaches of London's flagship FTSE 100 index.
No fast-growing minnows, these are global behemoths -- think Shell (LSE: RDSB), Unilever (LSE: ULVR) or Vodafone (LSE: VOD) -- with robust business models and a long-term sustainable stream of profits.
Granted, they're not going to 10-bag overnight; but, equally, they're not going to go pop, either.
Rising dividends
Buy a corporate bond or gilt -- or any other fixed-interest investment, such as NS&I certificates -- and you know to the penny what you're going to earn.
Many high-yield shares have an enviable track record of not just paying a decent dividend but increasing it over time, too, and at a rate that's comfortably above inflation, as well.
The result? A decent income, and an income that is rising in real terms, too.
> High-yield shares form a key part of our new investing service called Motley Fool Share Advisor. Find out more here.
More from Malcolm Wheatley:
> Malcolm owns shares in GlaxoSmithKline, BAE Systems, BP, Tesco, and Aviva. The Motley Fool owns shares in GlaxoSmithKline, Unilever and Tesco.
