Mighty River to yield 6%?

Financial advisor Martin Hawes thinks shares in Mighty River Power, which is the first state-owned energy company to be partially floated, should be a good buy.

In an email to investors he writes:

Quite a few people are saving their pennies at the moment knowing that Mighty River Power is coming up for partial sale soon. The word is that Government is very keen for this to be a success and although the shares will not be given away cheap (neither they should!), they should represent good buying.

I have heard from various people that the price will be at a level that will give a dividend yield of 6% and some have even said 7%. Given where interest rates are at the moment that would represent fairly good value. The company is not without risk (what is?) but a company that provides green, renewable energy should be in demand. It will depend on price but you should be ready to buy some shares …

A dividend yield of around 6%, would beat money in the bank at current rates and would be a far safer investment than finance companies.

 

Safer in the Bank

Tough but true talking from Martin Hawes:

More finance companies are likely go under. I do not know which particular ones are most at risk, but I believe this sector is so poor there is not a finance company that I would recommend to a client or invest in myself.

I concede there are some reasonably good finance companies around, although you could count them on the fingers of one hand.

However, the ones that are fairly well- governed and managed, and which have well-diversified loan books (ie the few good ones), still do not pay enough interest over and above what I can get at the bank to attract me as an investor.

There are some very sad stories about people who have lost their life savings through investing in finance companies which have failed, and some have done so on supposedly good advice from supposed experts.

But the buyer should always be beware. There is too much to lose and not enough to gain from taking a higher risk for only slightly more interest from most finance companies than you’d get from a safer option at a bank.