Even though two members of the Bank of England’s Monetary Policy Committee voted for an interest rate rise, it still seems unlikely that interest rates will hit ‘normal’ levels for many years to come. That means that savers are set to experience low returns on their cash balances, which can prove to be a highly frustrating scenario. Fortunately, other options are available. Here are three stocks that could help to make up for low savings rates through growing dividend yields.
Although shares in SSE (LSE: SSE) come with a dollop of political risk, since the Labour party are keen to shakeup the domestic energy supply industry should they win the election, SSE could still prove to be a top notch income play. That’s because shares in the company currently yield a highly impressive 5.9% and, best of all, the company is committed to increasing dividends per share at a rate that equals the inflation rate.
Certainly, SSE’s share price may not be quite as steady as you’d expect for a utility over the next year or two (especially if Labour win the election), but the market appears to be anticipating this via a valuation that is marked down somewhat. Indeed, SSE trades on a price to earnings (P/E) ratio of just 12.2 (versus 13.7 for the FTSE 100), which means that shares in the company seem to offer good value as well as strong income potential.
‘Reliable’ seems to be an appropriate word to describe Imperial Tobacco (LSE: IMT) when it comes to dividend payments. In fact, the company has increased dividend per share payments in each of the last five years and is forecast to increase them in the current year, as well as next year. The reason for this high level of consistency is simply a hugely dependable earnings profile, with Imperial Tobacco having the luxury of being able to increase the prices of its products in order to increase its bottom line. In turn, strong cash flow and a mature status allow it to pass on much of the growth to shareholders in the form of dividend growth. With shares in the company trading on a yield of 4.9%, they could prove to be a top income play.
Lloyds (LSE: LLOY) is the odd one out of the three. That’s because it yields just 1.7% at the moment. However, Lloyds has huge potential when it comes to dividends, since the bank is aiming to pay out up to 65% of profit to shareholders as a dividend in 2016. This is extremely generous and, based on next year’s forecasts alone, Lloyds is expected to yield as much as 4.2% (assuming the share price stays where it is). Looking further ahead, profit growth is set to be strong, and much of this growth could be passed on to shareholders. Indeed, strong bottom line potential and the planned increase in the dividend payout ratio could, in time, make Lloyds one of the most attractive dividend plays in the FTSE 100.
Of course, there are other companies that also offer great dividend yields. That’s why we’ve put together a free and without obligation guide to 5 shares that could give your finances a boost.
These 5 companies offer a potent mix of dependable dividends and exciting growth prospects. As such, they could make a positive contribution to your portfolio and make 2014 and beyond even better years for your investments.
Click here to access your copy of the guide – it’s completely free and comes without any further obligation.
Peter Stephens owns shares of Lloyds Banking Group, Imperial Tobacco and SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.