Daily Telegraph (UK): Stakeholders still win through Shell and back: “It has disappointed investors in the recent past (and is gratuitously punishing some of those in its twin company Royal Dutch) but the dividend payment has never been in doubt.”: Saturday 25 June 2005

The Cheshire Building Society will lend you money at 4.99pc, fixed for 25 years. Although this is a fixed-rate mortgage aimed at house buyers who want the unprecedented certainty that such a loan provides, such a long-term fix presents an extraordinary opportunity for those who already have a house with little or no debt on it.

Few lenders now insist that the money they advance is actually used to buy your home; if the security is good enough, and they are happy about your ability to repay (or at least to service) the loan, then they are eager to lend, as early-bird buy-to-let investors can testify. Encouraged by the experience of owning their own home, they have done well. The market now betrays many of the signs of overheating, as rents stagnate and latecomers gamble by buying off developer's plans.

The risks here look bigger than, for example, in the stock market. The FTSE 100 index has had a good run this month, but with the yield on the index at 3.24pc, after tax to a basic rate taxpayer, the interesting question is whether an investor should borrow, buy and wait. A private investor cannot easily buy the FTSE 100, but then he doesn't need to. He could pick a few shares and dream of an agreeable retirement. Were he to buy Lloyds TSB and United Utilities, the two highest-yielding shares in the top 100 with his 4.99pc borrowed money, he would immediately receive a net income of over 2pc, the difference between the cost of the money and its current return from their dividends.

This might seem a little racey, since Lloyds is surely years away from raising its payout, even if some future chief executive doesn't actually cut it. United Utilities has pledged to raise its dividend in line with inflation over the next five years but it's had a terrific run and there's always the chance of some mad socialist regulator of the future confiscating its water profits.

In the middle of the yield range, and still recognisably the same business as it was 25 (or even 50) years ago is Shell. It has disappointed investors in the recent past (and is gratuitously punishing some of those in its twin company Royal Dutch) but the dividend payment has never been in doubt. It currently yields 3.26pc, implying that our borrower would have to find 1¾pc a year to bridge the gap.

In fact, the gap will be less than that, since Shell is almost certain to raise its dividend this year, perhaps by quite a bit, to reassure shareholders and to reflect its profits from the booming oil price. It's impossible to say when the return from buying Shell today would overtake the cost of the fixed-rate mortgage, but a compound growth rate in the payout of 5pc a year would pass it in less than nine years. In the past decade, the dividend has risen by over 50pc and, while forecasting is always difficult (especially for the future), there's every chance that record will be maintained. Faites vos jeux.

http://www.telegraph.co.uk/money/main

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