When yield and long-term portfolio income are top priorities, investors turn to the companies that can deliver: The blue-chip stocks.
When low interest rates diminish the returns on bank term deposits, you may only make enough to cover the cost of inflation, but be no further ahead financially in the future.
That is not acceptable.
Investing is sacrificing now to have much more many years from now. Even a tiny 1% difference in your returns over time can make a huge difference in 20 – 30 years. If you had $50,000 invested and got a steady 7% return over 30 years, you’d have about $380,000 in total.
Do the same thing at 6% and your portfolio would only be around $287,000. That 1% difference would cost you about 25% in potential total dollar returns. Ouch!
That’s why investors look for stable income stocks whether share prices go up or down.
Here are two blue-chip stocks with yields over 6% that could help keep your returns up over the coming decades.
National Australia Bank Ltd (ASX: NAB) usually pays the highest dividend yield of the big four banks, but that is because its share price hasn’t risen as strongly as the other three. Weighted down by its poorly performing UK businesses for many years, it has struggled to improve them. But the new CEO Andrew Thorburn is taking decisive steps to sell the UK businesses and focus on building up its base in Australia.
Currently, NAB stock pays a huge 6.3% fully franked yield, which would be a great return base in addition to share price gains that could come from a leaner bank structure. I would watch the bank closely to see how the UK asset sales progress. It could be a good catalyst for growth.
Insurance Australia Group Ltd (ASX: IAG), the leading ASX-listed general insurance company and is getting bigger thanks to its recent acquisition of the insurance underwriting business of Wesfarmers Ltd (ASX: WES). It will be able to provide more insurance coverage through its already successful brands like NRMA Insurance, CGU and SGIO.
This acquisition strengthens its business foundation for the future and protects its leading market share in the insurance industry. The company expects its gross written premium to climb around 17% – 20% in FY 2015, mostly due to the acquisition. The stock yields a great 6.1%, but what investors will also love is Insurance Group Australia’s track record for steady dividend growth. Sticking with market leaders for long-term income is one way to help secure future portfolio returns.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
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