The longer the problems in the Eurozone drag on for, the less likely interest rate rises in the UK become. Thats because, while the UK economy is performing well, the Bank of England is unlikely to begin to raise interest rates until they feel that the outlook is relatively certain. And, for savers and income-seeking investors, a low interest rate is bad news because it means that returns are pegged back.
High-yielding stocks, then, are one of the simplest remedies to the problem of low interest rates. And, in this space, there is a great deal of choice in the FTSE 350, with yields well above the best that bank accounts can offer being available. For example, mining company Anglo American (LSE: AAL) currently trades on a yield of 6.3%, which is among the highest on offer in the index. Meanwhile, Anglo Americans sector peer, Glencore (LSE: GLEN) (NASDAQOTH: GLNCY.US), also has a top notch yield of 4.8%, thereby making the two stocks of great interest to yield-hungry investors.
Certainly, share price falls are a key reason why both stocks offer such impressive yields, with Anglo Americans share price having declined by 27% since the turn of the year and Glencores having slumped by 18% year-to-date. And, with the mining sector enduring a tough period, many investors may be put off buying a slice of both stocks. However, just because their shares have fallen and their bottom lines have come under pressure does not mean that they are not great income stocks.
In fact, dividends at both companies are highly sustainable. For example, Anglo Americans bottom line is set to rise by 29% next year and this means that its dividends should be covered 1.6 times by profit next year. Similarly, Glencores bottom line growth of 54% that is pencilled in for next year should allow it to pay dividends 1.8 times out of net profit. Therefore, while not without risk, the outlook is positive for both companies as income plays.
Similarly, Vodafone (LSE: VOD) (NASDAQ: VOD.US) remains a key income stock for a number of investors. And, with its shares having fallen by 5% in the last month in response to a poor outlook for the Eurozone (to which Vodafone has major exposure), its shares now yield a very appealing 5.1%.
Looking ahead, Vodafone seems to be in something of a win-win situation. If the Eurozone improves and begins to prosper, then Vodafones exposure to it is likely to be seen by investors as a major positive and its shares could move higher. Similarly, if the Eurozone continues to endure a challenging period, then Vodafones strategy of buying undervalued assets in the region should be somewhat easier and improve the companys long term earnings outlook.
As such, and while neither Anglo American, Glencore nor Vodafone are without risk, they appear to be well-worth buying as income stocks at the present time.
Of course, they aren’t the only appealing income stocks in the FTSE 100. That’s why the analysts at The Motley Fool have written a free and without obligation guide called How To Create Dividends For Life.
It’s a simple and straightforward guide that you can put to use on your own portfolio right away. And, in time, it could help you to build a great income from your investments and retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle.
Click here to get your copy of the guide – it’s completely free and comes without any obligation.
Peter Stephens 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.