Although investors are expecting the Bank of England to raise interest rates at some point over the next year, it seems as though they may be disappointed with the pace at which they do rise. That?s because the Bank of England has been at pains to point out that rates will rise only gradually and that a ?new normal? interest rate of around 3% could be on the cards.
Clearly, this would be bad news for income investors. Indeed, with property yields being…
Although investors are expecting the Bank of England to raise interest rates at some point over the next year, it seems as though they may be disappointed with the pace at which they do rise. That’s because the Bank of England has been at pains to point out that rates will rise only gradually and that a ‘new normal’ interest rate of around 3% could be on the cards.
Clearly, this would be bad news for income investors. Indeed, with property yields being unattractive and bond yields being even worse, there are few options available to investors.
One option that is still very attractive is high-yield shares. Here are three that could boost your income for a very reasonable price.
British American Tobacco
The big attraction for investors when it comes to tobacco stocks such as British American Tobacco (LSE: BATS) is their consistency. Whether the economy performs well or not, demand for tobacco remains very constant and, although regulations are becoming tighter, the proportion of adults who smoke remains stubbornly high. For example, in the UK the proportion has remained at around 20% during the last ten years.
So, British American Tobacco’s current yield of 4.2% should be very consistent moving forward and, furthermore, should grow at a rate higher than inflation due to continued scope for price increases and efficiencies. For instance, dividends per share are expected to increase by 7.5% next year, which is around four times the current rate of inflation and shows that the stock could be a winning income play.
This year has seen BAE (LSE: BA) release a profit warning as a result of cutbacks in defence spending across the developed world. Despite this, shares in the company have risen by 8.5% since the turn of the year, which shows that market sentiment in BAE remains buoyant even while the industry is going through a challenging period.
Of course, a yield of 4.3% helps to keep investors interested in the company, while a price to earnings (P/E) ratio of just 12.6 highlights BAE’s value even after an impressive nine months. As a result, BAE could prove to be a top notch income play.
With roughly two-thirds of revenue being earned through its domestic energy supply arm, Centrica’s (LSE: CNA) earnings profile is relatively stable. Of course, the exploration and production arm is more volatile, but should create value for investors in the long term.
That said, the political risk associated with domestic energy supply means that shares in Centrica have been weak during 2014. They are currently down 11% since the turn of the year but, trading on a P/E ratio of 11.5 and yielding 5.7%, they seem to offer good value and considerable income potential moving forward.
Of course, British American Tobacco, BAE and Centrica aren't the only stocks that could give you a much higher income. So, which others should you buy, and why?
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Peter Stephens owns shares of BAE Systems, British American Tobacco and Centrica. 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.