Negative interest rates: two dividend stocks I’ve bought to earn 3%

If we see negative interest rates in the UK, it will become even harder to build wealth. Edward Sheldon is buying dividend stocks for protection.

| 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.

Recently, there’s been a great deal of talk about negative interest rates. A lot of people are worried. Negative rates will make it even harder to build wealth.

Personally, I’m not too concerned about negative interest rates. Why? I simply don’t keep a lot of my wealth in cash savings. Sure, I keep a little bit of cash on hand for liquidity and emergencies. However, the rest of my money goes into assets that have the potential to generate strong, above-inflation returns and help me build long-term wealth.

Dividend stocks are one asset class I invest in. These pay me income on a regular basis. This income is generally far higher than the income I’d receive if I put that money in the bank. An added bonus is that there’s the potential for capital growth too. With that in mind, here’s a look at two shares I’ve bought to shield myself from negative interest rates.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

Dividend stocks: protection from negative interest rates

One of my core dividend stock holdings is Unilever (LSE: ULVR). It’s a leading consumer goods company that owns a wide range of food and drink, home care, and personal care brands. Most people are familiar with Unilever’s brands. They include Dove, Persil, and Hellmann’s

Unilever has a great record when it comes to paying out dividends to investors. It’s paid out regular dividends for decades. Last year, it paid investors about 143p per share. At the current share price, that equates to a yield of about 3.2%. That’s about three times the best rates on savings accounts right now. And it’s a lot higher than we’re likely to get from the banks if we see negative interest rates.

Unilever is well positioned for growth over the long term. This is due to the fact that more than 50% of its sales are generated in emerging markets. As incomes rise in these regions over the next decade, sales should increase. This means that Unilever could potentially provide me with some attractive capital gains in the years ahead, alongside my dividends.

Dividends and capital growth 

Another dividend stock I’ve bought for protection against negative interest rates is Reckitt Benckiser (LSE: RB). It’s a consumer goods company with a focus on health and hygiene. Brands in its portfolio includes the likes of Nurofen, Dettol, and Mucinex.

Reckitt Benckiser also has a strong long-term dividend track record. Last year, it paid its investors 174.6p per share. At the current share price, that equates to a yield of about 2.6%. In a world of negative rates, I think that kind of yield is attractive.

I see a lot of investment appeal in Reckitt Benckiser at present. That’s because, as a result of Covid-19, the world has become far more focused on hygiene. This is boosting the company’s sales.

I expect this increased focus on hygiene to persist for at least a few years. “The signs are that the crisis is leading to a longer-term behaviour shift with consumers demanding reassurance that workplaces, shops and public transport are germ-free,” Hargreaves Lansdown analyst Susannah Streeter said recently. Analysts at Bernstein believe that Covid-19 will change consumer habits permanently.

Overall, there’s a lot I like about Reckitt Benckiser. With a yield of 2.6% on offer, I see the stock as a good hedge against negative interest rates.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Edward Sheldon owns shares in Unilever, Reckitt Benckiser, and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How much would we need in a Stocks and Shares ISA for £10,000-a-year passive income?

We're still in the first month of the new 2025/26 ISA season, and that means a lot of investors are…

Read more »

Dividend Shares

2 brilliant stocks currently on sale that can help to build a second income

Jon Smith outlines two stocks with dividend yields in excess of 6% that could be a smart purchase for investors…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Warren Buffett ‘bought American’. Should investors consider the same in an unstable market environment?

During the 2008 financial crisis, Warren Buffett doubled down on his commitment to American stocks. Our writer revisits that strategy…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

£10,000 invested in Glencore shares 5 years ago is now worth…

Glencore shares have been on a wild ride, but long-term shareholders are sitting on a healthy gain despite the recent…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

2 promising UK growth stocks I’m eyeing up for May

Ever the income investor, our writer takes a step out of his comfort zone to explore the benefits of two…

Read more »

Portrait Of Senior Couple Climbing Hill On Hike Through Countryside In Lake District UK Together
Investing Articles

BP shares go ex-dividend on 15 May. Time to consider grabbing that 6.5% yield?

Harvey Jones says BP shares have been through a trying time but the FTSE 100 oil giant still offers a…

Read more »

US Trade Barrier Tarrif as American Economic Protectionism
Investing Articles

How will Trump’s tariffs impact my Stocks and Shares ISA?

This writer has been taking a look at the holdings in his Stocks and Shares ISA to determine which are…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is Tesla stock about to crash? Here’s what the charts say

Tesla stock has demonstrated incredible volatility in recent months, but there will almost certainly be more to come. Dr James…

Read more »