It's been a tough year for income seekers. Savings accounts pay a pittance and many corporate giants are cutting their dividends. But we've tracked down some of the best sources of income available to investors, including shares, funds, gilts, bonds and structured products.
High-yield shares
The theory is fantastically simple. With bank savings rates at all time lows and bond yields eroding faster than the Sussex coastline, it's time to jump into undervalued – and therefore high yielding – equities to generate returns that can't be found elsewhere.
However, this well-trodden rationale belies the troubles investors face in identifying high yielding shares at a time when the flow of cashflows vital to maintaining dividend payouts can turn to a trickle overnight. Blue chip companies around the world have been slashing payouts. US bellwether GE's decision to cut its dividend last month sent shockwaves around the investment world. And the UK’s banks – once the bedrock of any self-respecting income investor's portfolio accounting for a quarter of FTSE 100 dividends – have conspicuously slashed theirs. 'Will they? won't they' speculation that even trusty payers like BT (currently yielding 20.6 per cent) and Marks & Spencer (8.5 per cent) may rein in their payouts too, continues to bubble and even oil leviathan BP has been forced to publicly state that it would maintain its payout after fears of the first cut since 1992 mounted.
The difference between an 8 per cent dividend yield and a 3 per cent rate on a cash ISA doesn't look that attractive when the risks of owning equities are taken into account. Equity dividend hunters face a very real possibility of significant capital erosion in addition to the threat of dividend cutbacks. An 8 per cent annual yield is no comfort if your initial capital happens to be worth 8 per cent less at the end of the year.
