With interest rates set to stay at relatively low levels over the medium term, the challenge of producing an income from a portfolio look set to continue for a good while yet.
Indeed, high yield stocks can give an instant rush of income. However, if dividends stagnate then their real terms value can be eroded by inflation.
Therefore, dividend growth potential, plus a high yield, could prove to be a winning combination over the next few years. With that in mind, here are three stocks that could tick both of those boxes.
With a yield of 5.1%, HSBC (LSE: HSBA) certainly appeals as an income stock. However, where it holds real potential for income seeking investors is with regard to its dividend per share growth prospects.
Indeed, dividends per share, backed by strong earnings growth, are forecast to rise by 8.1% in 2015 alone. This means that shares in HSBC could be yielding as much as 5.5% next year (assuming a constant share price).
Furthermore, with shares in the bank trading on a price to earnings (P/E) ratio of just 11.3, they seem to offer great value as well as top notch income prospects.
British American Tobacco
While British American Tobaccos (LSE: BATS) yield is a little less than investors may be hoping for, its the dividend growth potential that marks the company out as a top income play.
Indeed, the current yield of 4.2% is set to rise next year (assuming a constant share price) as dividends per share are forecast to increase by 7.5% in 2015. This means that British American Tobacco could be yielding as much as 4.5% next year and, with a strong track record of dividend per share and earnings growth, shares in the company could prove to a be a valuable addition to income portfolios.
With around 60% of its revenue being derived from emerging markets, Unilever (LSE: ULVR) is often viewed as a pure play growth stock. However, it also has superb income potential.
Thats because it currently yields a very impressive 3.6% and has considerable dividend growth potential. For example, in 2015, Unilevers dividends per share are set to rise by 6.8% and, looking further ahead, the aforementioned emerging markets exposure could push earnings (and dividends) even higher. As a result, Unilever could prove to be a well-balanced investment moving forward.
Of course, building an income portfolio needs more than HSBC, British American Tobacco and Unilever. So, which other companies should you buy, and why?
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The guide is simple, straightforward and could give your income a boost! In fact, it could help you retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle.
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Peter Stephens owns shares of HSBC Holdings, British American Tobacco and Unilever. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.