With interest rates firmly stuck at 0.5%, dividends remain of great importance to many private investors. After all, with the outlook for the UK economy being somewhat uncertain and inflation currently at zero, the prospect of an interest rate rise seems remote, and, even when it does finally arrive, the increase in the base rate is likely to be long and slow.
While the FTSE 100 has risen to a record high in recent months, there are still a number of stocks that offer good value for money and a yield of 5% or more. Here are three prime examples.
With a price to earnings (P/E) ratio of 14.7, National Grid (LSE: NG) (NYSE: NGG.US) offers good value for money when compared to the FTSE 100, which has a P/E ratio of around 16. Furthermore, with the short term outlook for the FTSE 100 being somewhat bearish, with election uncertainty likely to hurt sentiment in the weeks ahead, National Grid could prove to be a sound investment owing to its stability and robust performance.
And, with National Grid currently yielding 5.2%, and having a business model which means that dividends are very sustainable and should grow by at least as much as inflation over the medium term, it has huge appeal as an income stock.
Growth at a very reasonable price
Although Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is expected to cut dividends in the current year, as it seeks to reorganise and improve its financial performance, it is due to recommence dividend growth next year. As such, it trades on a forward yield of 5%, which is one of the best yields on offer from the FTSE 100.
Of course, the rest of 2015 and 2016 are likely to be a period of change for the bank, with a new management team making its mark in an attempt to boost its bottom line. However, the bank’s valuation appears to more than compensate for such challenges, with Standard Chartered currently trading on a price to earnings growth (PEG) ratio of just 0.7. This suggests that it offers growth at a very reasonable price.
A superb income play
While the outcome of the election could have a major impact on SSE’s (LSE: SSE) financial performance in 2015 and beyond, with a new, tougher regulator potentially being put in place, its current valuation appears to more than take this risk into account.
For example, SSE trades on a P/E ratio of just 14, and with earnings forecast to increase by 4% next year, this appears to be good value, when you consider that the FTSE 100 offers only a slightly higher rate of growth and trades on a P/E ratio of 16. Furthermore, with SSE having a yield of 6%, with dividends covered 1.2 times by profit, it looks set to be a superb income play over the medium to long term.
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Peter Stephens owns shares of National Grid, SSE, and Standard Chartered. The Motley Fool UK has recommended National Grid. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.