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Where to find double digit yields?

October 10, 2014//

 

Anyone who has been invested in the UK stock market in small and mid-cap

stocks over the past six months will have had their faith in equities sorely

tested. The sustained volatility and downward pressure on shares has meant

difficult times for private investors, after a stellar performance in 2013.

 

Nor have cash deposits been a good place for your money. Historically low

interest rates have meant returns have not even kept pace with inflation. So

for investors looking for healthy yields, what are the alternatives?

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Cash in notice accounts: You might be tempted to put your cash in an

Individual Savings Account, or tie it up for a couple of years, in order to achieve

a better rate of return. However, the rates are still very low: among the current

best deals is the Post Office Cash ISA paying 1.55 per cent, or the Skipton One

year fixed rate bond at 1.6 per cent, rising to 2.05 per cent if you are prepared

to lock your money up in a two year fixed rate bond.

 

With inflation running at 1.5 per cent currently, the value of your money is

barely keeping pace with inflation, and if you are a basic or higher rate tax

payer it is effectively a negative return.

 

Dividends from shares: The best dividend yielding stocks tend to come from

the FTSE 100. According to Morningstar Select’s recent data, there are 44 UK

shares that pay a dividend of greater than the inflation rate (ie 1.6 per cent).

 

These include WM Morrison (yield 7.65 per cent); Vodafone Group (6.79 per

cent and Tesco (5.1 per cent). Bear in mind, though, that the yield on a share

will rise when its price falls, so although Tesco and Morrison shares are paying

a high dividend, investors may have had to take the pain of a 40 to 50 per cent

fall in the value of their initial investment over the past year. When companies

hit difficult times, there is no guarantee that the dividend will be maintained.

 

Gilts: Although government gilts are regarded as a very safe investment, the

yields on them are currently not looking particularly attractive. The highest

yielding gilts are paying just under 4 per cent, while the lowest just 0.375 per

cent, according to Fixed Income Investor (www.fixedincomeinvestor.co.uk).

The UK 10 year gilt yield is currently 2.26 per cent (as of the beginning of

October).

 

Bonds: Some of the companies hardest hit by the recent economic

turmoil – including banks and financial services companies – are paying

yields of around 5 to 6 per cent. These include Abbey National and

Standard Chartered, according to data from the Investors Chronicle (www.

investorschronicle.co.uk).

 

Junk bonds which are sold by companies regarded as higher risk, are starting to

fall out of favour. The Wall Street Journal reported this week (October 8) that

Europe’s high-yield corporate bond funds, having been in keen demand for the

past couple of years, saw $1 billion outflow in September, according to data

from EPFR Global.


UK Property: this is an asset class which has always been popular with UK

investors.

 

According to data from HSBC, the best rental returns are to be found in

Southampton, while the worst yields are in the Kensington and Chelsea area of

London, where yields are as low as 2.88 per cent.

Nor are investors likely to enjoy the continued capital growth which they may

have enjoyed over the past decade. Predictions are for house prices to fall by

0.8 per cent this year, according to the Centre for Economics and Business

Research (CEBR).

 

US Property: Investing in US Property can generate reliable income and yields

of 10 per cent or more if you choose the right type of property in the right

area, says US property specialist CityR.

Pooled investment schemes, such as the ones run by CityR, are becoming

increasingly popular with UK investors looking for better returns on their

investment.

 

“The recent economic crisis in the US means that property prices still offer

good value, with the potential for capital gain over an investment horizon of 3-

5 years,” says CityR founder Ron Szekely.

For example, the yield on CityR’s property in Chestnut Ridge, Louisville,

Kentucky, has been 12.9 percent.

 

“The average annual return of our investment in Eagle Landing, Montgomery,

Alabama has been 11.2 per cent, “ says Ron Szekely. “The average annual

return of our investment in Chancellor Avenue, New Jersey has been 11.3 per

cent.

 

CityR, specialises in helping investors buy into multi-family residences with the

prospect of 8-12 per cent plus income, and the opportunity for capital gain when

the property is eventually sold.

 

This is a medium-term investment. Ron Szekely says: “We would not

recommend our investment for those who may have a requirement for the

capital in a time shorter than 3-5 years as they will lose the opportunity for

capital gain on the sale of the investment.”

 

However, for those with a lump sum of £36,000 or more, there is now an

opportunity to secure both income and capital growth.

 

“The economic recovery in the US continues to gather in strength, but it takes

time to develop additional multi-family housing in the right location, so there is

a medium-term opportunity to exploit the gap between the demand for rental

properties and the supply to the market.”

If you want to learn more on how to wisely invest in US Click Here
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