With interest rates remaining at rock-bottom levels, parking your retirement savings in cash over the long term is not a very sensible idea. With inflation currently running at around 2%-3% per year, your spending power is likely to diminish over time if your money is sitting in cash.
One alternative, is to invest some money in dividend stocks. Of course, stocks are higher-risk than cash, yet with many dividend stocks in the FTSE 100 currently offering dividends yields of 5% or higher, the risk may be worth the reward.
With that in mind, here’s a look at three high-yielding FTSE 100 names that could boost your retirement savings.
BP (LSE: BP) is a popular stock among dividend investors simply because the oil major is one of the best-known companies in the world and is easy to understand. It’s also one of the largest companies in the FTSE 100.
Last year, BP paid its shareholders 40 cents per share in dividends, split over four quarterly payments. At the current share price, that equates to a high yield of 5.4%, which is far higher than the yields on offer from savings accounts right now. Looking ahead, analysts expect similar payments for this year and next.
It’s worth noting that BP’s profits are tied to movements in the oil price, so a collapse in the oil price could affect future dividends. However, BP’s break-even oil price — that needed to cover both capital expenditure and dividends — is around $50/bbl, so there’s a decent margin of safety right now with the oil price above $70/bbl.
Another popular dividend stock among UK investors is HSBC (LSE: HSBA). Like BP, it’s one of the largest in the FTSE 100 index.
Last year, the bank paid its shareholders 51 cents per share in dividends. At today’s share price, that also translates to a yield of 5.4%. The bank plans to sustain the dividend at that level in the near term.
One appeal of HSBC is its exposure to high-growth, developing markets in Asia, which provide a platform for growth. In 2017, net loans to Asian customers rose 20% to $426bn, which helped revenue from the region rise 15% to $26bn. With the bank planning to focus its attention heavily on Asia going forward, the long-term story here looks attractive.
Lastly, if you’re looking for an even higher yield, check out tobacco manufacturer Imperial Brands (LSE: IMB). The tobacco sector has been out of favour for a while now, and that’s driven share prices down, and dividend yields up, creating a fantastic opportunity for dividend investors.
It’s worth noting that despite the challenges tobacco stocks have faced in recent years, Imperial has continued to increase its dividend payout each year. In fact, it’s now recorded nine consecutive annual 10% dividend increases, which is an incredible achievement, and it plans to keep increasing the payout by 10% per year in the medium term. Last year, the group paid out 171p per share to investors, which at the current share price, equates to a high yield of 6.3%. When you consider that the average cash ISA pays interest of around 1% per year, that yield is hard to ignore.
Of course, there are plenty of other high-yield stocks in the FTSE 100 that could be worth considering. If you’re looking for more ideas, check out the report below.
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Edward Sheldon owns shares in Imperial Brands. The Motley Fool UK has recommended HSBC Holdings and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.