the gold price has been trading near all-time highs this month. No surprises there. 2020 started with fresh geo-political tension between the US and Iran that added fresh uncertainty to the already weak economic scenario in the UK. More recently, the IMF cut its global growth forecasts slightly for 2020 as well. A perfect mix of uncertainty and macro-sluggishness has understandably led investors to seek out safe havens like gold.
Steep run-up in the gold price
Now, I don’t think gold is a bad investment, not by a mile. In fact, I’m of the view that holding a proportion of savings in gold is prudent if (in the very unlikely event) our worst scenarios play out. But buying gold now, when its price has already run up, doesn’t seem like a good idea to me. I’d much rather wait for a drop in the price before considering buying it.
Reduced scope for growth investing
The trouble is, the FTSE 100 index’s performance isn’t inspiring either. The past month has been somewhat positive, with the UK having regained political stability. But the index really hasn’t gone anywhere much in the past few years. That isn’t a reason for investors to despair, however. In fact, if we are feeling particularly risk-averse, it’s a good time to consider ‘safe’ stocks that yield high incomes in a sustainable way, rather than chasing growth.
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Double-digit dividend yield
There’s more than one share offering an impressive dividend yield. One is the FTSE 100 tobacco biggie Imperial Brands (LSE: IMB), which has so far been offering market-beating 10%+ dividend yields. There are ethical considerations when it comes to investing in IMB, of course, with tobacco being its mainstay. But to be fair, the company is trying to transition into cleaner smoking alternatives or next-generation products (NGPs). The transition will take its own time and will depend critically on how fast the NGP market grows and the share in it that IMB is able to garner.
In this time of flux, IMB has decided to link dividends to profits, which could result in a lower dividend yield going forward. How much, if at all, it will decline, remains to be seen however. Given its past history of substantial dividends, I’m optimistic. But the risk can’t be ignored either.
High yield and growth potential
For that reason, I’d also consider FTSE 100 housebuilder Persimmon, which has a yield of 8%, as well. Its yield looks good even though its stock price has had a good run since August last year. Political stability in the UK since December has only added to its good fortunes.
Moreover, even though the economy is tepid, the latest print for the house price index is positive. Forecasters expect a continued rise in house prices in 2020, which can potentially boost both the share price and financial performance for real estate companies like PSN. Even if its yield reduces as the share price rises further, it’s still a win for investors. I’d strongly consider buying it for income.
