Five alternatives to Royal Mail
It has certainly been a great start for Royal Mail shares. Investors have seemingly been attracted to the prospect of a high dividend yield coupled with some prospects for growth, and having been offered at 330p during flotation the shares are now trading in the 580p region, an increase of more than 70%.
However, many private investors are still smarting from their much-reduced allocation of Royal Mail shares. Any applications over £10,000 received no shares at all, while those applying for less than this all received the same allocation of £749 worth of shares – though clearly these are valued much higher now.
For those wanting to invest their remaining money committed but not allocated to Royal Mail shares there are a huge range of options from UK-listed shares, investment trusts, exchange traded funds (ETFs) and open-ended funds.
Below the experts from Charles Stanley Direct highlight some income and growth investment ideas they believe are worthy of consideration.
Royal Dutch Shell “B”
Last Thursday (31 October), shares in Royal Dutch Shell fell 5% following a gloomy third quarter update. Profit was 15% below expectations due to production issues in Nigeria, rising costs and low refining margins.
However, Shell has an enviable track record. It has grown its dividend in dollar terms every year since the end of World War II, The oil giant will bring five major projects online in the next 18 months, which should add an extra $4bn to cash flow in 2015. If this target is met there should be no reason for Shell to break its dividend record. The prospective yield is 5.2%, variable, not guaranteed. NB UK-based investors should purchase the “B” share class rather than the “A” as the latter has a Dutch source and income may be subject to withholding tax.
National Grid owns regulated electricity and gas transmission and distribution networks in the UK and US. It announced a new dividend policy in March this year to grow the annual pay out “at least in line with the rate of RPI inflation each year for the foreseeable future”. This followed a review by the UK regulator that has fixed allowable returns and required investment all the way out to 2021. The prospective yield is 5.4%, variable, not guaranteed.
Artemis Income fund
UK equity income funds are a perennial favourite of investors – and for good reason. With interest rates at historic lows, equity income funds offering yields in the region of 4% have considerable appeal. They also offer the potential for the income – and capital – to grow over time, though unlike cash they can also fall in value so you could get back less than you invest.
One of our preferred funds in the sector is Artemis Income. Managed by equity income experts Adrian Frost and Adrian Gosden, It offers exposure to a portfolio of high-yielding UK blue chip companies such as GlaxoSmithKline, Shell and Vodafone. Since Adrian Frost took over the fund in 2002, it has outperformed its sector handsomely, and income payments have grown impressively too, though past performance is not a guide to the future.
Jupiter Merlin Income fund
For more defensively-minded investors a spread of asset classes can help dampen volatility while still providing the prospect of rising income and capital growth. In this regard a “multi-manager” fund such as this represents a one-stop-shop investment portfolio. It contains a spread of UK equities and bonds as well as other assets such as gold and overseas shares. Managed by the highly respected Jupiter team, exposure to each asset class and geographical area is obtained through carefully selected funds – presently 14 in total.
Liontrust Special Situations fund
More adventurous investors bullish on the UK economy could consider a growth fund investing in the entire breadth of the UK market, from smaller companies through to FTSE heavyweights.
One of our preferred funds in this area is Liontrust Special Situations managed by Anthony Cross and Julian Fosh. They focus on investing in companies with an ‘economic advantage’ through innovative technology, strong distribution or a well-defined brand. These are factors that can create barriers to competition and help ensure success in a world of slow growth. The long term returns of this fund have been highly impressive, though past performance is not a guide to the future, and I believe it is worth considering as a broad-based, long term holding for exposure to UK equities.