The first base rate hike appears to be looming closer, with two of the nine members of the Bank of England’s monetary policy committee expected to vote for an immediate rate hike this Thursday.
I’m still not convinced rates will rise, as growth remains fragile, but even if they do savers will see few benefits. Building societies are busily slashing savings rates again, so they can look more generous when the bank finally does act. Savers could end up going nowhere fast.
More Juice
If you can stand the added risk, you can get yields of more than 6.5% a year from big-name UK stocks BP (LSE: BP), Royal Dutch Shell (LSE: RDSB), BHP Billiton (LSE: BLT), Rio Tinto (LSE: RIO) and Anglo American (LSE: AAL).
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A quick glance at these five FTSE 100 giants reveals they have one thing in common: all are exposed to the oil and commodity crash.
BP is down 20% over the past year, Shell is down 28%. BHP Billiton is down a mighty 38%, Rio down 26% and Anglo American is off a whopping 50%.
Plunging share prices have pushed their yields upwards at the same giddying speed.
Crash Course
Before sinking your teeth into these juicy income streams, you have to ask yourself two questions. First, has the crash got further to run? And second, are those yields really sustainable?
Disappointing manufacturing data from US and China both sectors point to continuing troubles. The National Institute of Economic and Social Research has just warned that global growth will fall to its lowest rate since the financial crisis, this year and next.
Yet Gabriel Stein at Oxford Economics has been quietly pointing out that M3 money supply is growing at its fastest rate since the crisis, a healthy indicator of future growth. That €1 trillion of EU quantitative easing is also beginning to gain traction, and could help revive global demand.
This could be the moment of maximum opportunity, if you are feeling brave.
Hold Firm
BP and Shell in particular are both publicly committed to their dividends, but they could still ultimately prove unsustainable if oil prices stay low for a long period. BHP is likewise committed to increasing its dividend, but cover has fallen sharply, and the longer iron, copper and energy prices stay low, the more nervous investors will get. Rio’s dividend looks a little more robust.
A feared dividend cut at Anglo American in July didn’t happen, and management’s cost cutting plans offer some protection, but questions will remain.
