One of the challenges facing investors over the last few years has been what to do with cash balances. Indeed, with interest rates remaining at historic lows and set to rise only at a pedestrian pace, high-street savings accounts continue to offer less than 2% unless you’re willing to lock the money away for a few years. In addition, inflation continues to be a thorn in the savers’ side, with it increasing to 1.9% in June.
So, high yield stocks could prove to be attractive both now and over the medium term. Here are three that you can’t afford to ignore and that could prove to be realistic alternatives to holding cash.
SSE
With a dividend yield of 5.9%, SSE (LSE: SSE) (NASDAQOTH: SSEZY) continues to be among the highest yielding stocks on the FTSE 100. However, there is much more to SSE than just a high yield. Indeed, perhaps the key takeaway for investors is the fact that SSE aims to increase dividends per share at least as quickly as inflation. This not only means an improved yield for shareholders, but also means that their investment is better protected against the effects of inflation over the long term. Allied to this is the fact that SSE’s dividends remain well-covered at 1.4 times earnings, which shows that the company can afford its current payout to shareholders. Moreover, there were no major surprises in today’s trading update and the company continues to make reasonable progress with its investment plans.
Tullett Prebon
This week saw the announcement of a new CEO at Tullett Prebon (LSE: TLPR), with John Phizackerley replacing Terry Smith. Indeed, Tullett’s share price performance during 2014 means Smith does not leave on a high, since it is down one third since the start of the year. Part of the reason for this is uncertainty surrounding new regulations that could continue to mean banks are able to engage in less trading activity, which would be bad news for interdealer brokers such as Tullett. However, the company is forecast to deliver a profit next year and, furthermore, its current yield is extremely high at 6.8%. Furthermore, dividends are well covered at 1.8 times and have grown in three of the last four years. With shares in Tullett trading on a price to earnings (P/E) ratio of just 8.1, they seem to offer good value, too.
Amlin
Despite rising by 50% over the last five years, Amlin (LSE) still seems to offer good value for money at current levels. That’s because it trades on a P/E of just 11.4 and, moreover, offers a yield of 5.6%. In addition, its yield is well covered at 1.6 times and it is forecast to deliver dividend per share growth of 4.8% in the next year alone. Certainly, the bottom line is set to remain volatile which is something that has always been a feature of investing in Amlin, and shares could fluctuate considerably as a result. However, since it offers good value for money and a great yield, it could be a viable alternative to cash if you can afford to invest over the medium to long term.
