5 Decent Income Picks That Ought to Beat Bonds

LONDON -- Launched last Thursday, a retail corporate bond by interbroker ICAP (LSE: IAP.L  ) would appear to be already in danger of being oversubscribed.

Here's the news, straight from the horse's mouth:

The Offer Period for the ICAP 5.5% p.a. fixed rate 6 year retail Bond is closing early. Although originally scheduled to close at 12.00pm on Tuesday 24th July, the Offer Period will now close at 10.00am on Wednesday 18th July 2012.

In short, as you read these words, it's already too late to get in at the offer price of 100 pounds per 100 pounds nominal. If you still want the bond -- and its tasty-looking 5.5% fixed-rate yield -- then you'll need to buy it through the London Stock Exchange's retail bond market.

Gunning for income
But the real story here, of course, is that investors are chasing income. And with Bank Rate at a record low of 0.5% -- and some experts expecting a further cut to 0.25% -- that shouldn't come as any surprise.

Tesco's recent bond offer was also heavily subscribed, for instance, and again closed early. Earlier this month, Severn Trent also got away a successful launch, raising 75 million pounds on a 10-year bond linked to the retail price index.

And, as I've said, you don't have to wait for new launches to load up: Go to the London Stock Exchange's retail corporate bond market and you'll see bonds on offer from companies as diverse as GlaxoSmithKline (LSE: GSK.L  ) , British Telecom, and National Grid -- the latter being another example of an inflation-linked bond.

Blue-chip dividends
But for investors chasing income, corporate bonds aren't the only game in town, of course.

Look closely, and you'll not only see blue-chip shares offering higher yields than the same companies' corporate bonds, but also decent blue chips on sale at yields similar to -- or higher than -- the ICAP bond offer that has just closed.

ICAP's own shares, for instance -- as opposed to its 5.5% bond issue -- have a forecast yield of 6.8%.

And when it comes to capital growth, of course, you don't need me to remind you, shares offer considerably more capital growth upside than bonds.

Five to favor
So here are five broadly diversified decent-looking income picks on tasty-looking forward yields, along with their five-year dividend growth record.

For, as I pointed out just last week, dividend growth is the other side of the income story -- and the sweet spot is a share that has a high-but-sustainable yield, and a decent history of growing the dividend.

And as a starting point, the five picks below push the right buttons for me. Indeed, I hold three of them myself. Over the five, their average forecast yield is 5.4% -- virtually indistinguishable from the ICAP bond.

Company

Today's Price (pence)

5-Year Dividend Growth

Forecast Yield

British Land (LSE: BLND.L  ) 540 8.2% 5.2%
GlaxoSmithKline 1,454 9.2% 5.4%
J. Sainsbury 314 10.6% 5.4%
SSE (LSE: SSE.L  ) 1,403 9.9% 6.2%
Royal Dutch Shell (LSE: RDSB.L  ) 2,280 9.5% 5.0%

Source: Bloomberg and Digital Look.

Under the bonnet
As it happens, uber income-investor Neil Woodford -- who looks after two of the country's largest investment funds, and runs more money for private investors than any other City manager -- counts one of these shares among his very largest holdings.

Which one? Its name is revealed in a special free report from The Motley Fool -- "8 Income Shares Held By Britain's Super Investor" -- which profiles no fewer than eight of his largest holdings, and explains the investing logic behind each one.

What's more, another of the shares is profiled in a further special free report -- "Top Sectors Of 2012" -- which reckons that its share price might be 10% undervalued. Again, the report is free, and can be in your inbox in seconds.

Are you looking to profit from this uncertain economy? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

More investing ideas from Malcolm Wheatley

Malcolm holds shares in GlaxoSmithKline, British Telecom, Sainsbury, Tesco, and SSE. He does not have an interest in any other shares listed. The Motley Fool owns shares of Tesco. The Motley Fool has a disclosure policy.
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