Both gold and income stocks have fallen this year, but I know which I’m buying. I think FTSE 100 dividend-paying stocks are a far better way of building long-term wealth than buying the precious metal.
The gold price should be rocketing right now, as the world staggers from one crisis to another. It is supposed to be a safe haven in a crisis, but it has been crashing along with everything else.
I’m looking to buy FTSE income stocks now
Gold is down 14.53% over six months, to trade at $1,638 an ounce. Stock markets have also been volatile, but I would expect that. Shares are known to fall in troubled times, yet gold is supposed to rise and it hasn’t.
Gold has been a store of value for 4,000 years but now it has been usurped by the US dollar. The greenback is up 26.16% against the pound year-to-date, 25.36% against the Japanese yen and 18.02% against the euro.
This is a problem for gold as it is priced in dollars. Roughly half of all gold demand comes from China and India, and consumers in these two countries are buying less as the cost rises.
Gold also doesn’t pay any interest, and that makes it look less attractive as interest rates rise and rival safe havens such as cash and bonds offer higher yields. As do income stocks.
Today, the FTSE 100 yields 4.14%, while a host of shares on the index yield between 6% and 12%. That level of income gives me a much better chance of protecting my portfolio against the ravages of inflation. Gold cannot do that, because it pays no income at all.
Better still, FTSE shares should give me a rising income, as companies look to increase their payouts over time. This income isn’t guaranteed, of course. Dividends can be cut at any time. However, by investing in a spread of income stocks, I can reduce the damage if one or two firms cut or suspend their shareholder payouts.
Stocks look cheap to me
Income stocks are trading at tempting valuations, too, as share prices fall again. Right now, the FTSE 100 trades at just 13.53 times earnings. Of course, gold looks cheap, too. It is almost 20% below its all-time high of $2,084, which it hit August 2020. That will tempt bargain seekers and I get that.
I might hold, 5% of my portfolio in gold, for diversification. But the bulk of my retirement savings are directed towards FTSE 100 income stocks. They may not offer as much capital growth as I would like, but there are consolations. Those dividends will still come my way when the market struggles.
I would make a beeline for banks such as Barclays and Lloyds, which yield 3.73% and 4.47% respectively, and trade at just 4.32 and 6.16 times earnings. Glaxo’s yield has shot up to 7.56% and it’s valued at just 11.6 times earnings, the cheapest I’ve seen in years. Admiral yields 6.93% and is valued at 10.52 times earnings. These are great income streams, and the FTSE 100 is packed with similar bargain dividend stocks.
I will reinvest my dividends for growth today, and draw them as income to top up my pension one day. That’s why income stocks are top of my shopping list.