Three stocks to boost income

Low yields will be around for a while yet. Professional stock picker Mike Turner tips three stocks for income investors to buy now.

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Mike Turner, head of multi-asset at Aberdeen Asset Management.

Despite talk of the Bank of England looking to start raising UK interest rates within the next six to 12 months, this is likely to be a gradual process. Although the UK has reported good growth figures in recent weeks, the recovery is still fragile.

For example, as the Bank of England itself has noted, the level of personal debt outstanding remains high. As a result, the low-yield environment which we've been familiar with for the past few years may not disappear anytime soon.

That means savers and investors will need to continue to find innovative ways to offset the impact of low interest rates on their income.

It is also important to find a range of diverse sources of income that can protect your capital against adverse market conditions, as well as from the corrosive effects of inflation.

Prudential (LSE: PRU) remains one of our favourite financial investments. The company has a tremendous market position in Asia's rapidly expanding life and health insurance sector, which is benefiting from demographic trends (lots of young people) and low rates of product penetration (far fewer people as yet have insurance than in more developed markets).

In the US, meanwhile, Prudential has a leading proposition in the variable annuities market, which is doing well as members of the baby-boomer generation seek to provide for their retirement.

Prudential's more traditional UK business generates lots of cash flow and it also has a top asset management franchise in M&G, whose products have seen strong demand.

These excellent long-term growth opportunities, combined with its very solid capital base and well-regarded management team, leaves Prudential with the potential to deliver significantly enhanced returns to shareholders over many years to come.

Compass (LSE: CPG) sits at the opposite end of the spectrum, revelling in the glorious dullness of being the world's leading contract catering and facilities management business. This is an extremely well-run company with an excellent management team and a leading position in its market.

It stands to benefit from a number of factors: increased levels of outsourcing in developed markets; an expansion into the facilities management business; growth in the emerging world; and overall growth in employment levels. Compass generates prodigious cash flow.

Given its strong balance sheet and relatively acyclical earnings (it's not overly dependent on a healthy global economy), it looks well placed to keep paying and growing cash payouts to shareholders. It has already delivered three substantial buybacks and a large special dividend in recent years, on top of healthy growth in the underlying dividend.

3i Infrastructure (LSE: 3IN) is another company we like. It is slightly different to other infrastructure funds in the market, as it part-owns its underlying investments rather than having a 20 to 25-year concession to run the assets as is the case with some of its sector peers. It's also far more concentrated, with significant investments in the transport, energy and water sectors.

Like the rest of the infrastructure sector, the company benefits from visibility of long-term cash flows (many of them index-linked), and it currently provides a secure level of income, as many of these are backed by governments or quasi-government agencies.

The sector has continued to attract new capital as the asset class has become more widely held, and if bond yields remain low, this should continue to prove the case.

Recommended

Six high-yielding funds for income investors to buy now
Share tips

Six high-yielding funds for income investors to buy now

Rising interest rates are starting to make many popular income funds look less than attractive. Here, David Stevenson picks six that should weather th…
24 May 2022
Amazon’s shares have fallen hard – value investors should take note
Share tips

Amazon’s shares have fallen hard – value investors should take note

Investors have dumped Amazon shares as post-pandemic life returns to normal. But it still has plenty of competitive advantages, says Russell Hargreave…
23 May 2022
Three high-yielding FTSE 250 dividend stocks I’d invest in right now
Share tips

Three high-yielding FTSE 250 dividend stocks I’d invest in right now

The average FTSE 250 dividend yield is around 2.4%., but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income inve…
23 May 2022
JD Sports will get back on track – here's how to play it
Trading

JD Sports will get back on track – here's how to play it

Sportswear retailer JD Sports was a profitable trade in 2019 and is worth watching again, says Matthew Partridge.
23 May 2022

Most Popular

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Share tips of the week – 20 May
Share tips

Share tips of the week – 20 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 May 2022