Forget 1.5% from a savings account. I’d buy into FTSE 100 dividend stock Shell’s 6% yield
While the popularity of the recently-launched 1.5% Marcus savings account has been high, the reality is that it is possible to obtain a significantly stronger income return from the FTSE 100. The index yields over 4% at the present time, while Shell (LSE: RDSB) has a yield of around 6% following its recent share price fall.
Looking ahead, the company could deliver an improving dividend. However, it’s not the only income stock that could be worth a closer look. Releasing news on Monday was a high-yielding share which could post impressive income returns in the long run.
The company in question is real estate investment trust (REIT) LondonMetric Property(LSE: LMP). It released news of the sale of its retail park in Martlesham Heath for £22m. This reflects a net initial yield of 5.2%, with the 48,000 sq ft retail park having been acquired in 2013 for £10.4m. The company has been able to attract new retailers since then, with it being fully let at average rents of £25.70 per sq ft. The weighted average lease term is 12 years to expiry and 10 years to first break.
The property has generated a profit on cost of 40% and an un-geared return of 13% per year. The sale reflects a premium to the March 2018 book value.
With a dividend yield of around 4.5%, LondonMetric property appears to offer a sound income outlook. It is due to report a rise in earnings of around 4% per annum over the next two years, and this could lead to increasing dividends. While the prospects for the property industry may be somewhat uncertain, in the long run the business could offer good value for money and growth potential.
Although the recent performance of the oil price has caused Shell’s share price to decline, this means that the stock now has a dividend yield of almost 6%. Uncertainty surrounding the world economy’s outlook could continue to weigh on the price of black gold, although the company seems to be in a good position due to its plans to rationalise its asset base and use improving free cash flow to reduce leverage. Both of these strategies could lead to a stronger business which is better able to cope with volatile oil prices.
With Shell forecast to post a rise in earnings of 19% next year, its dividend could rise over the medium term. The company’s shareholder payouts are expected to be covered 1.7 times by profit next year, which indicates that higher dividends could become increasingly affordable – especially if the oil price fails to decline significantly. While the company may not be the most stable of dividend opportunities due to its reliance on the oil price, in my opinion it could offer high returns in the long run through a rising dividend. This could make it more appealing than the FTSE 100 and a Marcus savings account in the coming years.
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Peter Stephens owns shares of Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.