I’m firmly convinced that we’re in one of the best periods for income investing that I’ve seen in years. I’m also even more convinced that a Cash ISA is among the worst places to put our money today.
The first thing I want from an investment is for its returns to at least beat inflation, and a Cash ISA simply doesn’t. The best easy access Cash ISAs right now are offering interest rates of around 1.5%, which guarantees you’ll lose money in real terms. No, the Cash ISA is off the table.
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Instead, here are two FTSE 250 stocks that have been growing their earnings for years, and rewarding their shareholders with rising dividends.
Howden Joinery Group (LSE: HDWN) might not sound like an exciting prospect, but I’m not looking for excitement. The UK’s leading manufacturer and supplier of fitted kitchens, appliances and joinery products has been paying dividend yields of around 2.5%. Those aren’t the biggest in the market, but they’re around 2.7 times covered by earnings (which makes them look safe) and they’re growing every year ahead of inflation.
What’s more, the share price is up 63% over the past five years, so if you’d had some in a Stocks & Shares ISA you’d be doing a lot better than with a Cash ISA.
That share price success includes an 8% boost on Thursday, after the firm reported a 5.4% rise in revenue for the first half of the year, leading to a 13.5% rise in pre-tax profit and a 15.7% jump in basic earnings per share.
Chief executive Andrew Livingston said: “With our peak trading period still ahead of us, we are on track with our plans for the year as a whole.”
Howden ended the period with net cash of £217.1m, which makes its forward P/E multiples of around 14-15 look attractive to me, and I see the shares as still good value even after their impressive performance to date.
Car distribution and sales is another business that doesn’t really get the adrenaline going. But in the hands of Inchcape (LSE: INCH), it has had the dividends flowing nicely.
Alongside several years of steady earnings growth, Inchcape’s dividend reached a yield of 4.9% last year, and though it’s expected to be held flat this year, the yield of 4.5% is still very attractive (and would be approximately 2.2 times covered by earnings). The yield will have dipped a little only because the share price has picked up a bit over the year.
The company has just reported a 12.8% fall in pre-tax profit (at constant currency) for the first half of the current year, though that was expected and was hit by a number of one-offs. Once exceptional items are adjusted for, we see a much smaller 3.3% fall, which is closely in line with full-year forecasts. The firm has secured important new business for the second half, so I’m happy with things at this stage.
Cash-wise, the firm is in no trouble, and is in the process of returning £100m to shareholders by way of a share buyback, which should be completed by the end of December.
Inchcape makes the bulk of its profit through worldwide distribution, so any downturn in UK car sales shouldn’t be a big problem. On a forward P/E of under 10, I see Inchcape shares as a buy.