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Boost Your Portfolio’s Income In 2015 With Premier Farnell plc And Royal Dutch Shell Plc

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Transformational year

2014 has been a transformational year for Premier Farnell (LSE: PFL). The company has been working to reorganise its business, reduce costs and increase efficiency. Management has predicted that this reorganisation will reduce annual costs by £6m to £8m. 

This cost reduction is expected to drive Premier’s growth over the next few years. Earnings per share are expected to grow 11% during 2016 as cost savings filter through. Unfortunately, costs incurred from the restructuring, as well as currency headwinds are going to hold the company back during its 2015 financial year, which it is already halfway through.  

Still, Premier supports a dividend yield of 6.1% at present levels, so investors will be paid well to wait for the company’s recovery. The payout is covered one-and-a-half times by earnings per share and is set to rise by an inflation busting 3% next year. What’s more, after falling 22% year-to-date, Premier currently trades at a lowly forward P/E of 11. 

All in all, Premier looks cheap at present levels and offers an extremely attractive dividend yield of 6.1%. 

Blue-chip income 

With a market capitalisation of only £644m, Premier may be too small for some income investors. In that case for blue-chip income seekers, Royal Dutch Shell (LSE: RDSB) looks to be the best pick. 

At present levels, Shell is set to support a dividend yield of 5.4% next year and the payout will be covered twice by earnings per share. 

However, Shell has recently been hit by concerns over the falling oil price but this has only presented a buying opportunity. You see, one of Shell’s strengths is the integrated nature of its operations. Indeed, while the company’s upstream earnings will fall in line with the oil price, Shell’s downstream operations will benefit. 

For example, as the price of oil falls, the cost of acquiring oil to refine will fall, widening Shell’s profit margins. And BP‘s management has stated that for every $1 improvement in the profit margin for refined products, BP generates an additional pre-tax operating profit of $500m.

What’s more, Shell has plenty of experience dealing with a low oil price. The company has been around in one form or another for nearly 200 years. Over the past 10 years alone, the price of oil has traded as low as $20 per barrel and as high as $140/bbl. Despite these wild price swings, Shell’s dividend payout has been uninterrupted since the end of the Second World War. 

So, based on the data above, it seems as if Shell’s dividend is safe for the time being and the company’s shares would make a great pick for any income portfolio.

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Rupert Hargreaves has no position in any shares mentioned. 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.

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