As banks and building societies slash savings rates yet again, the income from top FTSE 100 stocks looks more generous than ever.
While most savings accounts pay 0.5% or less, the FTSE 100 offers seven times that amount, with a yield of 3.5%.
But some big name stocks offer dividend yields of 6% or more, notably J Sainsbury (LSE: SBRY) and WM Morrison (LSE: MRW), Centrica (LSE: CNA), Petrofac (LSE: PFC) and SSE (LSE: PLC).
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The income is tempting, but is there a sting in the tail?
Sainsbury’s
Many investors will be cautious about Sainsbury’s, given the troubles afflicting the supermarket sector. Although it currently yields a succulent 6.47%, that’s largely due to the fact that its share price fell 25% in the past year.
There have been signs of a share price recovery in recent weeks, after a less-worse-than expected Christmas. If low oil prices and the return of real wage growth get people spending again, you might see some capital growth. If not, the dividend could be cut.
Morrisons
The Morrisons’ dividend is also under threat. Chief executive Dalton Philips has pledged to preserve it, but he steps down in March, and his successor may be much less sentimental.
At today’s yield of 6.62%, it certainly looks ripe for retrenchment, as a cut could fund the next leg of the supermarket price war. Morrisons is up 30% in the last three months, as investors bet that the worst is over for the sector. Could they be onto something?
Centrica
British Gas owner Centrica has been a political football since Labour leader Ed Miliband said he would freeze prices if he won the election in May.
Tumbling energy prices have done little to quell consumer anger, as the big utilities have been slow to pass on savings to customers. The upcoming campaign could be tough on Centrica, and its 6.32% shareholder payout could come under pressure.
Petrofac
Petrofac is up 12% in the past week after winning a $4bn contract with the Kuwaiti state oil company. But that only goes a small way to reverse years of share price falls, which have driven the yield up to 6%.
The oil services sector has been hammered by falling crude prices, but if you reckon the price drop has been overdone, Petrofac could look tempting.
SSE
Energy firm SSE should be a safer prospect, although an Ofgem investigation into a breach of competition law is concerning.
It’s near-6% yield is tempting, but if politicians do freeze energy prices it could be cut. But even if that did happen, the income would probably still beat the miserly return on cash.
