With rates still punishingly low more than a decade after the financial crisis, it’s only logical for those with sizeable amounts of savings to seek out accounts offering the best interest.
Somewhat predictably, the Marcus account offered by Goldman Sachs — with its 1.5% rate — has proved highly popular since its launch in September, so much so that other providers have been forced to act. Only this week, the Post Office introduced a new online saver account offering a similar rate.
Beyond having a buffer against life’s challenges, however, I wouldn’t want much of my money in any of these accounts, Marcus included. After all, a rate of 1.5% is less than inflation, which means that the value of cash stored here is actually decreasing. What’s more, this rate includes 0.15% bonus which only lasts for a year.
So, having cleared any debt and saved for a rainy day, there’s no doubt in my mind that a better destination for any surplus cash is the stock market, particularly as many companies in the FTSE 100 offer dividends that easily dwarf the returns offered by the aforementioned accounts.
Big hitter
Big oiler Royal Dutch Shell (LSE: RDSB) is one example. Sitting at the top of the FTSE 100 tree, the £195bn cap currently yields 6% — four times that offered by the Marcus.
And while Shell’s fortunes hinge on the price of oil, it’s worth highlighting that the company hasn’t cut its payout since the Second World War. That doesn’t mean it never will, but it certainly places a lot of pressure on management to avoid doing so.
Having lost around 13% of its value since peaking in May this year, Shell’s stock currently trades on a little over 11 times earnings for the current year. If we assume that analyst earnings projections are correct, this drops to under 10 in 2019 (based on the current share price). That looks good value to me, particularly as recent results suggest the company is in far better health than it was a few years ago. At the beginning of the month, Shell reported a near 40% rise in profit to $5.6bn over the third quarter of its financial year.
Paper profits
Another FTSE 100 stock I’ve had my eye on for some time is packaging and paper firm Mondi (LSE: MNDI). Given the huge popularity of online shopping — and the subsequent need for goods to be delivered safely to consumers — I think firms like this have a very bright future.
Like Shell, the shares have encountered a bit of selling pressure recently, falling 20% since August. Like Shell, this leaves the stock on 11 times earnings. Although not the cheapest firm in its industry (peers DS Smith and Smurfit Kappa trade on lower valuations), Mondi does appear to generate the best returns on capital invested by management. While it’s important not to oversimplify things, this is usually indicative of a higher quality company.
Forecast to yield 3.5% in the current financial year, the Addlestone-based business might not return anything like the payouts offered by Shell, but these are more than covered by profits and look set to increase another 7% next year. They’re also still over double that offered by the Marcus account and higher than the FTSE 100’s average yield of 3.1%. Factor in reliable cash flow and Mondi should tick a lot of boxes for most income investors.
