Brokers point to BP alternatives

Income investors are being encouraged to buy shares in electricity producers, gas suppliers and green technology developers, following BP’s decision to suspend its dividend payments this year.

Brokers have pointed out that many utility companies – as well as pharmaceuticals and financial groups – can match the dividend yield provided by BP prior to its Gulf of Mexico oil spill.

The Share Centre has identified 10 alternative income stocks, three of which are energy utilities: electricity distributor National Grid, on a “lower risk” yield of 6.3 per cent; gas provider Centrica, on a “medium risk” yield of 4.1 per cent; and power generator International Power on a similar yield of 4 per cent.

Selftrade is also recommending that private investors look to other sectors. While noting that “markets appear to have reacted with some equanimity to the news that BP is to postpone its dividend,” Stephen Barber, the broker’s adviser on market trends, said: “Consider long-term investment opportunities in green technology, engineering and infrastructure – there are some well managed collective funds available which offer diversified exposure to this varied sector.” He also suggested investors should now “re-assess positions in the financials sector”.

Data from Capita share registrars show that many are already doing so. In the past three months, private investors sold £1.1bn of their holdings in oil resources companies, and switched almost half of the proceeds – £510m – into utilities groups. At the same time, they bought £270m-worth of financials stocks.

Investors who still own BP shares have seen the value of their holdings rise 6 per cent since Thursday, when the company announced the creation of a $20bn fund to cover compensation for the oil spill and a suspension of dividends worth £8bn this year.

Tony Shepard at Charles Stanley has maintained his “hold” recommendation on the shares, and clients of TD Waterhouse were strong buyers last week – trades in BP were eight times the volume of the next most-bought stock.

However, The Share Centre is still not recommending BP as an outright buy due to “uncertainty over the true cost of the clean-up”. It prefers Royal Dutch Shell on a yield of 6.1 per cent, as well as Vodafone on 5.6 per cent, and insurer Aviva on 7 per cent.