The Income Investor: a review of 2024
There have been some substantial movement in yields over the past 12 months. Analyst Robert Stephens looks at some of the companies featured in this column and what 2025 might bring.
24th December 2024 10:40
by Robert Stephens from interactive investor
Income investors have experienced yet another eventful year. After rapidly increasing in 2022 and 2023, interest rates finally began their decline during 2024. This contributed to improved investor sentiment towards equities, with the FTSE 350 index gaining 5% so far in 2024 after rising by just 1% in aggregate over the previous two calendar years.
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Income stocks that performed well in 2024, and were discussed in ii’s Income Investor column during the year, include FTSE 100 retailer Tesco (LSE:TSCO). Its shares have risen by around 21% since being featured in this column in July, with the effects of its share buyback programme and an increase to its financial guidance for the full year having a positive impact on its market valuation.
With modest inflation and falling interest rates having the potential to lead to greater purchasing power among consumers, the outlook for Tesco’s share price appears to be upbeat. Although its yield now stands at a rather modest 3.3%, the potential for brisk dividend growth means it remains a worthwhile income opportunity.
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Unilever (LSE:ULVR)’s share price has also risen since it was first discussed in the Income Investor column during March this year. The global consumer goods company’s market valuation is up 18%, with its latest quarterly trading update showing a further improvement in performance.
The firm is set to benefit from a stronger global economic outlook as interest rates fall, while the productivity improvements it is making and the separation of its ice cream business could lead to a more robust financial outlook. This may prompt stronger dividend growth that could make up for a relatively low yield of 3.2%.
Elsewhere, British American Tobacco (LSE:BATS) has gained 19% since featuring in this column during July. Even after its recent gains, however, the stock continues to have a relatively high yield.
It currently amounts to 8%, which is more than twice the yield of the FTSE 100 index. This suggests that while the firm continues to experience an uncertain future, it could still offer good value for money on a long-term view. Its price/earnings (PE) ratio of 7.9 further highlights the wide margin of safety that remains on offer.
Asset | Current yield (%) | 3 Jan 2024 yield (%) | Yield change (%) |
FTSE 100 | 3.75 | 3.82 | -1.8 |
FTSE 250 | 3.78 | 3.82 | -1.0 |
S&P 500 | 1.57 | 1.94 | -19.1 |
DAX 40 (Germany) | 2.71 | 3.22 | -15.8 |
Nikkei 225 (Japan) | 1.72 | 1.80 | -4.4 |
UK 2-yr Gilt | 4.444 | 4.135 | 7.5 |
UK 10-yr Gilt | 4.594 | 3.673 | 25.1 |
US 2-yr Treasury | 4.317 | 4.364 | -1.1 |
US 10-yr Treasury | 4.554 | 3.986 | 14.2 |
UK money market bond | 4.80 | 5.26 | -8.7 |
UK corporate bond | 5.74 | 5.85 | -1.9 |
Global high yield bond | 6.72 | 8.73 | -23.0 |
Global infrastructure bond | 2.39 | 2.37 | 0.8 |
SONIA (Sterling Overnight Index Average)* | 4.70 | 5.323 | -11.7 |
Best savings account (easy access) | 5.00 | 5.22 | -4.2 |
Best fixed rate bond (one year) | 4.81 | 5.50 | -12.5 |
Best cash ISA (easy access) | 4.93 | 5.11 | -3.5 |
Source: Refinitiv as at 19 December 2024. Bond yields are distribution yields of selected Royal London active bond funds (as at 30 November 2024) except Global high yield bond (31 October) and global infrastructure bond which is 12-month trailing yield for iShares Global Infras ETF USD Dist as at 18 December. SONIA reflects the average of interest rates that banks pay to borrow sterling overnight from each other (17 Dec). *Data prior to May is based on 3-month GBP LIBOR. Best accounts by moneyfactscompare.co.uk refer to Annual Equivalent Rate (AER) as at 19 December. Past performance is not a guide to future performance.
Disappointing performance
Of course, not all of the companies discussed in the Income Investor column this year have delivered positive gains. For example, shares in BP (LSE:BP.) have fallen by 23% since they were featured in April. The energy company’s latest quarterly results showed that while profits fell by 29% year-on-year and net debt rose by 9%, it continues to have an upbeat long-term outlook.
The firm’s solid financial position means it can reinvest for future growth, while a cost-cutting programme could equate to improved profitability. When coupled with the company’s ambitious share buyback programme and a dividend yield of 6.3%, it appears to still offer an attractive income investing outlook.
Housebuilder Taylor Wimpey (LSE:TW.) has also proved to be a disappointment since being discussed here in August. Its shares have fallen by 21%, recording a significant decline of late as investors have adjusted their inflation and interest rate expectations following the Autumn Budget.
While a slower pace of interest rate cuts than previously anticipated could now be ahead, monetary policy easing is nevertheless still set to take place over the coming months. This could help to support demand for new homes, while an inflation rate that is within touching distance of the Bank of England’s 2% target could help to constrain build cost inflation. With a dividend yield of 7.6%, Taylor Wimpey appears to offer long-term income investing potential.
Clearly, the performance of the aforementioned stocks, as well as that of the wider index, could be subject to elevated volatility over the short run. However, with investor sentiment towards equities likely to improve as further interest rate cuts lead to lower yields for other mainstream assets and stronger financial prospects across several industries, the outlook for income investors who continue to focus on the stock market appears to be upbeat.
Robert Stephens is a freelance contributor and not a direct employee of interactive investor. Â
These articles are provided for information purposes only. Â Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. Â The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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