- Top dividend yields offer double current bond yield
- Glencore tops list at 9.3% yield
- Banks see global sell-off sparked by Silicon Valley Bank trouble
With UK interest rates at 4% compared with close to zero a year ago, and 10-and 2-year bonds yielding around 3.7%, investors have more opportunities for locking in a decent income.
Higher rates have made shares less attractive, after all if investors can lock in close to 4% for 10-years without taking much risk it makes sense to own more fixed income and fewer shares.
However, there are shares in the blue-chip FTSE 100 which have dividend yields more than twice that of bonds. Top of the list is diversified natural resources company Glencore (GLEN), which offers a chunky 9.3% yield.
High energy prices and volatile commodity markets have been key drivers for the firm’s marketing and industrial businesses, which recorded record profit last year.
Shares in index heavyweight HSBC (HSBA) were down around 5% on Friday following a big sell-off in global banks after US bank SVB Financial (SIVB:NASDAQ), usually referred to as Silicon Valley Bank, dropped 60% overnight in an emergency fund raise.
HSBC has been a beneficiary of rising interest rates which are good for banks’ net interest margin. Strong cash flows mean the bank’s 8.2% dividend yield is almost two-times covered by earnings.
Insurer Aviva (AV.) offers a yield of 7.6%, which looks well supported by strong momentum in the business. The company increased dividends by more than 40% last year with the prospect of further increases.
At the recent full year results the company upgraded guidance to low to mid-single digit dividend growth. Fellow insurer Legal & General (LGEN) offer investors a slightly higher yield of 7.8%.
House builder Taylor Wimpey (TW.) offers a yield of 7.8% but the current backdrop is not supportive. The dividend is only just covered by earnings.
Higher rates are not generally good for housebuilders and there have been increasing signs of stress in the housing market. The combination of higher build costs and soggy selling prices is putting pressure on margins for housebuilders.
Tobacco giant British American Tobacco (BATS) and telecom company Vodafone (VOD) offer double the yield on bonds at 7.9% and 7.8% respectively.
