Interest rates have become a really important issue for many savers in recent years. With them being so low for so long, it is little wonder that many savers are seeking out new ways to supplement their income during what has been a tough time for the UK economy.
For example, peer-to-peer lending has increased in popularity, while buy-to-lets continue to be the income method of choice for a vast swathe of the population. However, for me, high dividend paying stocks with sound long term outlooks for shareholder payouts remain the favoured option.
Three stocks which fit that bill in my view are Severn Trent Plc (LON: SVT) (LSE: SVT.L), SSE PLC (LON: SSE) (LSE: SSE.L) and National Grid plc (LON: NG) (LSE: NG.L). Those three shares yield 3.7%, 6.5% and 4.6% respectively. All of those yields hold great appeal for me, not only because they are high, but also because they are relatively stable.
As Severn Trent’s update from today reveals, the company is on-track to meet expectations and is performing in-line with consensus forecasts. As a provider of water services, its business is exceptionally robust and earnings visibility is high, which provides my portfolio with a degree of resilience during what is undoubtedly an uncertain period. In fact, Severn Trent’s share price is up by 1% since the start of the year, which highlights that it can be viewed as a relatively safe haven by some investors during difficult periods for the wider market.
Similarly, SSE also offers resilience, although I think there is additional risk versus Severn Trent. That’s because the domestic energy supply industry continues to suffer from a degree of political risk which seems to come around whenever there is a general election on the horizon. But with SSE expected to cover its dividends 1.3 times in the current year, I’m comfortable with the current level of headroom and the prospect for dividend increases in future.
My National Grid shares have also performed reasonably well since I bought them. I’ve picked up a 5%+ yield as well as capital gains of over 5% in the last year. Given the performance of a number of shares in the same time period, I’m pleased with that result.
In terms of its future, National Grid could become a more popular stock in the coming months. That’s because I think that interest rates are set to stay low throughout 2016 and that even if they do rise, it will be very slowly due to the low level of inflation being experienced as China’s slowing growth rate has a deflationary impact on the global economy. With National Grid expected to increase its dividends by 2.4% next year, they could beat inflation again and keep my income ticking over nicely.
The author owns shares in Severn Trent, SSE and National Grid at the time of writing.