With a dividend yield of 4.7%, National Grid (LSE: NG) (NYSE: NGG.US) continues to appeal to income investors at a time when an ultra-loose monetary policy seems set to remain in place. However, what also makes National Grid a top income stock is the fact that it is aiming to offer investors in the company a real terms increase in dividends per share over the medium term.
While inflation is set to hover around 1% in the short term, it would be of little surprise for this to move higher as the full effects of QE begin to be felt. As such, real terms increases in dividends could make a vast difference to the income of National Grids shareholders moving forward.
Of course, National Grid is hardly cheap based on its current year earnings of 55.7p per share, with it having a price to earnings (P/E) ratio of 16.7, for example. However, its premium valuation appears to be well worth paying due to its aforementioned income potential, as well as the fact that dividends remain comfortably covered by earnings at 1.3 times.
With a payout ratio of 57%, it seems as though there is scope for HSBC (LSE: HSBA) (NYSE: HSBC) to increase dividends. Of course, thats not to say that its current yield of 5.1% is unappealing but, with dividends per share forecast to be 6.9% higher next year than in the current year, it means that investors in the bank should be able to look forward to a sustained period of strong dividend growth.
Clearly, HSBC needs to do more with regards to its cost base and, although its efficiency drive is a start, weaker than expected trading conditions in Asia mean that bottom line growth is set to be in-line with that of the wider market in 2015.
Still, with a P/E ratio of just 11.3, HSBC seems to offer excellent value for money, as well as a great yield, thereby making it a bank with considerable potential for 2015.
Although the defence industry is not forecast to enjoy a purple patch in 2015, there is still an opportunity to make an excellent total return through investing in BAE (LSE: BA). Not only does the company pay a relatively attractive yield of 4.2%, its shares also offer great value, as shown by a P/E ratio of just 12.8.
Furthermore, with BAE expected to increase its bottom line by 6% next year, following a disappointing 2014 that saw a profit warning earlier in the year, there is scope for an upward rerating to its share price. And, with the global economy picking up pace, there is also the potential for positive surprises regarding BAEs profitability, which could cause an uplift to the companys share price, too.
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Peter Stephens owns shares of BAE Systems, HSBC Holdings, and National Grid. The Motley Fool UK has recommended HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.