Everybody moans about the poor returns on cash but too few people do anything about it. So why put up with 0.01% on your cash ISA when you can get 6% or 7% from blue chip UK stocks? The following three companies offer surprisingly high yields, and destroy cash in the process.
On your Marks
High street stalwart Marks and Spencer Group(LSE: MKS) has had a chequered share price history of late, losing a third of its value in the last year. One consequence is a tasty yield, which now pays an income of 5.82% a year. The problem is that the group still hasn't resolved its underlying dilemma, that Marks is two businesses in one, and while one is tickling investor taste buds, the other has been out of fashion for years.
The food business continues to serve up winning numbers, with most recent Q1 interims showing a 4% increase in sales as the company opens more of its Simply Food stores, although like-for-likes did fall 0.9%. However, clothing and home ruined the fun again, with a brutal 8.9% drop in like-for-like sales. Another worry is that M&S will be hit by Brexit, with ongoing sterling weakness forcing up raw material costs, and consumer uncertainty likely to return when Theresa May triggers Article 50 next year. Marks & Spencer may struggle to turn on the style but the valuation is undemanding at 9.22 times earnings, while the yield is projected to hit an even juicier 6.6% next year.
FTSE 100 listed global bank HSBC Holdings(LSE: HSBA) has managed to combine strong share price growth with a sky-high yield: the stock is up almost 30% in the last six months, while the yield stands at 6.04%. Right now, it offers plenty of rewards to shareholders, with last month's results including a $2.5bn share buyback and renewed management commitment to its current 51 cent dividend. That's quite a package.
Yet HSBC remains a company in recovery, trying to shake off the shock of the emerging markets slowdown. Where it goes next will largely depend on China, where slowing GDP growth is now the new normal. Forecasts suggest it will decline from 6.7% today to around 4.8% in 2020. That may dampen investor expectations, but maybe this is no bad thing. The stock isn't expensive at 11.62 times earnings, and the yield is reward enough on its own.
International media and education company Pearson(LSE: PSON) offers a glorious yield of 6.82%, but its share price performance has been rather less splendid. The stock is down 30% over the last year, and analysts are rushing to dish out sell recommendations, having been rattled by last year's shock profit warning.
Pearson recently posted a 7% drop in first-half underlying sales to £1.87bn, with operating profits falling from £39m to just £15m. The US higher education market remains weak, while demand for textbooks in South Africa has plummeted. EPS are forecast to fall 20% this year but an expected 16% rise in 2017 does offer some hope, and Pearson may be worth a pop at today's valuation of just 11 times earnings. Just close your eyes and think of the income.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.