The last seven years have beena nightmare for savers, or so weve been told. Its certainly true for those who are still clinging onto cash: today, the average easy access savings account pays just 0.58%, according to latest figures from Moneyfacts.co.uk. The outlook is increasingly bleak: April saw a staggering 143 savings rate cuts, against just 28 increases.
Oh do pipe down
So to be fair, savers do have something to beefabout. And older savers who no longer want to be exposed to stock market risk should feel particularly aggrieved, astheyre by and large stuck with cash. But heres a message foreverybody else: GET OVER IT!
We all know why the Bank of England slashed base rates to 0.5% in March 2009 and has kept them there ever since: it didnt have any choice, given that the alternative waseconomic meltdown. Personally, Id like to see rates rise again soon if only to prick thehousing bubble but until then weve all been given one big fat great juicy consolation in the shape of company dividends.
Yield to the yield
Low interest rates maybehellish forsavers but for those willing and able to take a chance on stocks and shares theyve been heaven. Thats because right now, you can take your pick from a host of top FTSE 100 stocksoffering dividend yields of up to 10 or 12 times base rate (or if you wish to invest in global bank HSBC Holdings which currently yields 7.96% almost 16times base rate).
Heres just a smattering of top stocks worthconsidering today, together with their crazy-generous yields: BP (7.72%), Royal Dutch Shell(7.64%), Rio Tinto(7.29%), Centrica (6.92%), Legal & General Group (5.76%), GlaxoSmithKline (5.53%) and Vodafone Group (5.05%). Tempting, much?
Dividend delight
This is a small selection of household name stocks paying generous income streams to anybody who feelscomfortable buying shares. Nowstocks are riskier than cash, even blue chip names like these. Theres always the danger that their share prices will plummet and your capital isnt guaranteed. Dividends arent guaranteed either: grocerygiant Tesco used to pay a generous dividend, it doesnt now.But history shows that over the long term, stocks and shares have completely outplayed cash.
You can reduce the risk by buildinga balanced portfolio of dividend-paying stocks diversified across sectors such as mining, banks, oil, insurers, utilities and pharmaceuticals. Better still, your dividend income should rise over time, as most companies aim to increase their dividend every year, often by farmore than inflation. The important thing is to reinvest those dividends back into the stock, asthatwill generate three-quarters of the profityou ever makefrom shares.
Base rate bashers
Talking about inflation, heresanother reason to heart dividend stocks. CPI inflation was just 0.3% in the year to April, so a generous dividend can boost the value of your money in real terms: HSBCs yield is more than 50 times the inflation rate. Since when has that ever happened?
So give over lamenting the death of cash and celebrate the age of the base rate-bashing, inflation-busting, wealth-multiplying dividend stock.
There are plenty ofexciting dividend stocks if you know where to look.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended BP, Centrica, HSBC Holdings, Rio Tinto, and Royal Dutch Shell B. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
