10 income shares to buy instead of Royal Mail
Many investors have been left disappointed by the paltry allocation of Royal Mail shares they received, and in some cases were left with none at all.
Aside from whatever growth potential Royal Mail may or may not have - quite a bit says broker Canaccord Genuity, which has slapped a 599p target on the shares - the company's commitment to providing a decent dividend was the rationale behind a lot of investors' interest.
If those who received the £750 worth of shares hold on to them they are set to be rewarded with a yield of 6.1%, as reported previously.
But if they were hoping to put a larger chunk of money in to benefit from such a healthy income, they will now be faced with a conundrum of what to do with that cash.
Private client broker Killik & Co has put together a list of its top UK income ideas for investors looking for a decent dividend yield, available below.
|STOCK||PRICE (P)||2014 PRICE/EARNINGS (TIMES)||YIELD (%)||ESTIMATED DIVIDEND GROWTH|
|BHP BILLITON||1,772||10.3||4.3||7% CAGR* over the next three years|
|CENTRICA||361||12.2||4.7||Growing in real terms|
|ESURE GROUP||223||9.5||6.2||5% CAGR over the next three years|
|GLAXOSMITHKLINE||1,550||12.1||5||Growing in real terms|
|HSBC HOLDINGS||669||10.3||4.8||11% CAGR over the next three years|
|NATIONAL GRID||744||13.6||5.7||At least in line with inflation|
|ROYAL DUTCH SHELL||2,078||7.8||5.4||Ahead of the rate of inflation|
|UNILEVER||2,351||16.3||3.8||Growing at a double-digit rate|
|UNITED UTILITIES||689||15.7||5.2||Growing at RPI+2% to 2015|
|VODAFONE||215||14.5||4.8||Growing in real terms|
* Compound Annual Growth Rate
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.