It’s been an eventful year for the FTSE 100 so far. Despite the UK economy starting to look stronger, the FTSE had a weak first six months in 2016. And then it all changed in June when the nation voted to leave the European Union.
Since then the FTSE’s been on a big climb to the 7,000 point level, but that’s simply a response to the drop in the pound — in dollar terms, the value of London’s top index is largely unchanged.
But with Brexit looming and looking harder by the day, and with a growing prospect of little or no economic growth (or even recession) over the next few years, what should investors do?
Smart money
For the answer to that we only need to look at what many have already been doing, and that’s turning away from at-risk sectors and from high-risk businesses, and heading for the dependability of safe companies offering progressive long-term dividend yields.
It’s no wonder that an at-risk bank share like Lloyds Banking Group is down 23% since the vote, while Unilever us up 9% (although Unilever shares have fallen again after its argument with Tesco over inflation-driven price rises — high import costs are a certainty with the pound falling).
I really can see the “flight to safety” trend continuing past this year, and I think the focus in 2017 and beyond will be increasingly on safe dividends. In fact, it’s arguable that that’s always the best way to go, regardless of the state of the economy, so where will the sensible money be heading?
Safe oil
The two big oil companies, BP and Royal Dutch Shell, are always going to be safe havens. Through the worst of the cheap oil crisis, both kept their dividends going — BP is on for a yield of 6.3% this year with Shell potentially offering 7%. Both share prices have climbed since the Brexit vote too, with BP up 28% and Shell up 16%.
On the insurance front we have Legal & General on better than 7% for 2017, with Aviva on a shade under 6% — both slumped after the Brexit vote, but Aviva has recovered the loss and Legal & General isn’t far behind.
Pharma giants GlaxoSmithKline and AstraZeneca should attract the 2017 investment cash too, with their worldwide business unaffected by Brexit — AstraZeneca shares have been pushed up 21% since the vote but still offer a yield of 4.4%, while Glaxo is up 14% with 4.8% on the cards.
Utilities providers are always favourites with long-term income seekers, and SSE is expected to pay out a 5.8% yield in 2017, with National Grid set to yield 4.3% — SSE shares are pretty much flat since the vote, but National Grid is up 8%.
Small caps?
Moving to smaller companies, there’s a 7% dividend on offer from Galliford Try — the shares fell along with the housing sector, but income seekers have helped push them back up again. Or there’s TalkTalk Telecom on 7.5%, and it should be pretty much immune to Brexit woes.
Or how about 7% from Interserve, or 6% from Aberdeen Asset Management?
There are lots of high yields to be found across all the FTSE indices, and I really do think that’s where the smart investors will be going during 2017 — and I reckon you’d do well to join them.
