The Bank of England base rate is currently 0.75%, while the average cash ISA pays 0.88%. But these two stocks trusts yield more than 7%, so isn’t it time you checked them out?
Dividend delight
Company dividends offer the antidote to today’s low interest rate world, if you are willing to take on a bit more risk. The FTSE 100 currently yields 4.01% and some individual companies generate far more than that.
City of London Investment Group (LSE: CLIG) is a specialist emerging markets asset manager that manages a range of institutional products investing in closed-end funds. It is a relatively small, specialist operator with a market cap of £104m.
High income
Investment growth has been steady but not spectacular, with the share price up 61% over five years. The real reward comes from its generous dividends and since launch in 2006 it has delivered a total return of 377%. It currently yields a whopping 6.91% a year, covered 1.5 times by earnings, and growth investors can benefit by reinvesting those dividends.
Emerging markets are having a tough time, and it could get worse. Assets under management fell from £3.9bn to £3.8bn in the three months to 30 September, although emerging and frontier market outflows were mostly offset by developed market inflows.
Volatility cuts both ways
City of London Investment Group still posted a £2.2m profit and increased its dividend 8% from 25p to 27p a share. It currently trades at a modest valuation of 9.9 times forward earnings. This could be a way to play recent emerging market weakness and pocket a high yield.
FTSE 250 spread betting firm IG Group (LSE: IGG) has crashed from 870p to today’s 584p in just over a month, a drop of 33%, as Q1 2019 revenues fell due to lower stock market volatility and stiffer regulation from Europe. It now trades at an apparently bargain valuation of 11.2 times earnings, and I reckon the rewards now outweigh the risks.
Brexit fix
IG thrives on stock market volatility as that gives its trader customers a bit of red meat to sink their teeth into. However, markets were relatively calm in the three months to 31 August, hitting first-half revenues which fell 5% to £128.9m.
It was also hit by a move from the European Securities & Markets Authority (ESMA) to extend a prohibition on selling binary options to retail clients for a further three months from 2 October. This ban, introduced on 2 July, led to a significant drop in trading by IG’s UK and European clients, reducing historic revenues by around 10%. The abrupt exit of boss Peter Hetherington added to the uncertainty.
Good bet
IG is responding by shifting its focus to boosting the numbers of its ‘elective professional clients’, which may include sophisticated retail clients. Brexit has threatened its ability to offer regulated financial products in all EU member states, but a German subsidiary looks likely to solve that.
This could be an attractive buying opportunity, with the stock now offering a massive forecast yield of 7.4%, covered 1.2 times. My colleague Paul Summers says this looks like a great time to take a punt on IG.
