HOW TO BEAT INFLATION – INVESTMENT NEWS
Even though inflation is falling savers are still losing out. Interest paid on savings in no-notice accounts is still lower than the increase in the cost of living all before tax is paid. And so the investors’ old friend the dividend, often measured in a few humble pennies per share has come back to fore.
Yes there is some risk but the knack is to pick companies or investment funds that have shown a record of paying dividends in the past. By choosing these types you can reduce the risk considerably. If you opt for long term income say over 10 years you should not need to worry too much about the day-to-day price of your holdings.
Jonathan Jackson of stockbroker Killik + Co says “Don’t underestimate dividend income. Many British companies have attractive dividend yields and should be able to lift these yields to above the rate of inflation”.
He also points back to when the stock market reached its all time high in 1999. Today the capital value of an investor’s holdings- as measured by the FTSE 100 index of blue-chip shares – would be down about 20 per cent from that high.
But the actual dividend income, measured in pounds and pence, has grown by over 40% during the period even though we have experiences some of the worst financial conditions in living memory. The dividends paid by companies can be from just under 4% to 6% for some of the larger stable companies such as the National Grid and Vodafone.
Investment trusts or unit trusts? Investment trusts beat unit trusts hands down when it comes to paying dividends that grow year on year.
Retired GP Charles Swainson came says “I started saving when I was young. My father introduced me to investment trusts. He owned shares in a trust called City of London and that was also my first investment”.30 years later Charles still owns the shares which have grown dividends for 45 successive years.
Investors can hold their dividend paying shares or funds within a stocks and shares ISA shielding income from tax.
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