Bank on the divi

By DAILY MAIL REPORTER
Updated: 19:00 EST, 13 November 2003

INVESTORS can get returns of more than 8% - by investing in Lloyds TSB. However, it's not the High Street bank's accounts that offer you this kind of return - but its shares.

Most shares pay a regular income every six months known as a dividend. The income (called the yield) on the FTSE 100 index of the biggest companies is around 3.5%.

But Barclays Stockbrokers has identified a portfolio of leading company shares that pay a much higher income. And the top payer of all is Barclays's arch rival, Lloyds TSB, with a yield of 8.35%.

Barclays selection of top income stocks avoids those companies that might cut their dividend. It also selects only those companies that are fundamentally strong and offer the chance for capital growth as well as income.

Yield is calculated by looking at the current dividend as a proportion of the share price. So if the shares are worth 100p and the dividend is 5p, the yield is 5%.

If the dividend remains unchanged but the share price falls, the yield increases - and if the opposite happens, the yield decreases.

Only ever consider buying single company shares if you can cope with the risk. Single company shares are much riskier than collective investments such as unit trusts. You should have a suitable cash cushion and a balanced portfolio before considering any single share investment.

Dividend yields are quoted gross, meaning taxpayers will have to declare the income and pay tax on it unless the shares are kept in an Isa.

Barclays says it is 'very unlikely' that Lloyds TSB will cut its dividend - and therefore its yield - unless it decides to buy another company. After Lloyds TSB, the next biggest yielder chosen is Severn Trent, which, based on yesterday's price of 711p, has a yield of 6.58%.

Scottish & Southern Energy (yield 6.12%), Sainsbury (5.56%) and British American Tobacco (5.5%) are the next top choices.

Then Barclays picks another banking rival - Alliance & Leicester - which, based on a share price of 898.5p, has a yield of 4.9%. 'The bank is well run and there is an ongoing share buy-back programme,' says the report.

Another top yielding choice is Aviva, the former Norwich Union, which, just like Alliance & Leicester, will have plenty of shareholders who received free shares when it demutualised. The yield is currently 4.67%.

At the interim results, the dividend was increased by 2.9% and Barclays says its 'forecasts a similar pace of growth in the near future'.

Another insurer, Legal & General, is suggested as a good high yielding stock - at the current share price, the yield is 4.64% - because, again, it is hoped its dividend will continue to increase.

The final two choices are hotels and betting group Hilton (yield 4.3%) and tobacco group Gallaher (4.84%).

Hilary Cook, director of investment strategy at Barclays Stockbrokers, says: 'It used to be the case that high yielding stocks were basket cases that you wouldn't have gone near.

'This is no longer true and, as our research shows, you can get brilliant returns from blue-chip companies. After all, the likes of Sainsbury and Lloyds TSB are hardly likely to stop paying a dividend.'