After interest rates rose again last week, the Bank of England base rate is now at 4.5%. This might not even be the end, with some analysts calling for it to go as high as 5%. Higher rates make Cash ISAs more attractive. They offer an investor the opportunity to lock in decent rates, but usually only for a one-year time period. However, I still prefer high-yield dividend stocks and feel investors should consider the below ideas.
Investing in the future
The first company is the Sequoia Economic Infrastructure Income Fund (LSE:SEQI). Over the past year, the share price has fallen by 17%. The current dividend yield is 8.02%. Of note is the fact that over the past five years, the dividend yield hasn’t fallen below 5%.
Sequoia provides debt funding for infrastructure projects. As such, the sectors involved tend to be the ones with large physical infrastructure needs. These include global transportation, utilities, power and renewables.
Part of the appeal with investing in this fund is the spread of projects across both sectors and timeframes. The average life of funding is 4.2 years. So at any point in time, some investments will be new, while others will be nearing completion. I feel this is a good way to diversify risk, as we aren’t talking about multi-decade projects.
As a concern, the scale of the infrastructure investments means that if something goes wrong, it has a large impact. Further, with debt funding it’s hard to pull out or liquidate quickly.
A short-term dip to buy
The other high-yield option to consider is Close Brothers Bank (LSE:CBG). Down 14% over the past year, it has endured some short-term pressures that have pushed the share price down 20% in the past six months. In part, this has helped to boost the dividend yield to 7.38%.
The main problem the business has been facing is from Novitas, an underwriting subsidiary of the bank. It had to make large provisions for potential credit losses on the lending book of Novitas. It commented back in March that steps have been taken to address the issues, however.
For income investors, the drop in the share price linked to this problem presents a good opportunity to buy the stock with its now-higher yield. I don’t feel that this issue will be a long-term one. Just because provisions have been made for losses, it doesn’t mean those losses will actually happen. In future trading updates, such provisions may be scaled back.
Further, the subsidiary is just one element of Close Brothers. Aside from it, the bank boasts a strong balance sheet. It is also benefiting from the higher interest rates in the UK, something that I expect to continue over the course of 2023.
Even though the risk on stocks is higher than a Cash ISA, I feel investors are fairly compensated via the much higher yields on certain shares. It therefore makes sense for investors to consider the above ideas as a potential alternative, I feel.
