Why HSBC Holdings plc, GlaxoSmithKline plc, Royal Dutch Shell Plc And J Sainsbury plc Are Better Than Bonds

HSBC Holdings plc (LON: HSBA), GlaxoSmithKline plc (LON: GSK), Royal Dutch Shell Plc (LON: RDSB) and J Sainsbury plc (LON: SBRY) could be a better bet than buying bonds.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Bonds are a slow and steady way of protecting your wealth — in theory, you’ll always get back what you put in, plus interest. This is not always the case, but, for the most part, bonds are considered to be a safe investment. 

However, there has recently been an increasing amount of concern regarding the state of the high-yield bond market. Indeed, as investors have flocked into high-yield bonds, seeking yield in this low interest rate environment, there is concern that bonds have now become overvalued. 

A warningcity

These concerns about a bond market bubble came to a head during June, when the chairwoman of the U.S. Federal Reserve, Janet Yellen, warned that investors they may be taking on too much risk by investing in high-yield but low-quality bonds. 

This warning sparked a sell-off. Billions of dollars in capital has flowed out of high-yield bond funds over recent weeks. Unfortunately, there are now concerns that further outflows could lead to a bond market crash, as liquidity dries up and investors all rush for the exit at once. 

Better choice

For bond investors, the possibility of a bond market crash is extremely concerning, especially when bonds are considered to be safe assets. But there is a better choice. Many shares now provide dividend yields similar to those supported by supposedly high-yield bond funds.

For example, according to Trustnet.com — the definitive source on fund information — the Aberdeen Emerging Markets Bond fund and Artemis High Income fund, which are the two highest fixed income funds in the site’s universe, only yield 3.85% and 4.07% (after fees) at current levels. 

gskIn comparison, GlaxoSmithKline (LSE: GSK) currently supports a dividend yield of 5.6%, covered one-and-a-half times by earnings per share. Further, this payout is set to hit 5.9% next year and 6.1% the year after — there are also no fees to pay for holding the company’s shares. 

Additionally, Glaxo’s management has talked about the prospect of an 80p per share special dividend next year. 

Plenty of opportunities 

As well as Glaxo, there are plenty of other opportunities out there. HSBC (LSE: HSBA) (NYSE: HSBC.US), for example, has the support of City superstar and income seeker, Neil Woodford, and it’s easy to see why.

HSBC’s shares currently support an attractive dividend yield of 4.5%, covered nearly twice by earnings per share. Current City forecasts expect the bank’s dividend yield to hit 5.2% next year followed by 5.6% the year after.  

Investors could also look to Royal Dutch Shell Plc (LSE: RDSB) to give their portfolio an income boost. Shell has consistently paid, and increased, its dividend payout every year since the end of World War Two, and it’s unlikely that the company will break this impressive record any time soon. 

royal dutch shellThe company currently trades at a lowly forward P/E of 11 and supports an attractive 4.3% dividend yield, covered one-and-a-half times by earnings. Shell’s yield is set to hit 4.5% next year and 4.6% the year after. 

Finally, J Sainsbury plc (LSE: SBRY) could be a good income pick. Although Sainsbury’s earnings per share are expected to fall around 10% over the next two years as the discounters encroach on the company’s turf, ,the hefty dividend payout is currently covered twice by earnings per share. So, at present, the payout does not look to be under threat. Sainsbury’s shares are set to yield 5.3% during 2015 and a similar 5.3% during 2016. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »