Is Ernie letting you down? The Premium Bond-picking robot will cut his ‘prize fund rate’ to just 3.6 per cent in August, meaning for many of us it is time to look elsewhere.

Dividend-yielding shares could be the answer for those on the hunt for an alternative income stream that is likely to last even as interest rates fall.

Thirty nine of the biggest 100 companies in the UK have a dividend yield that is more than the slashed Premium Bond rate. Many are also engaging in share buybacks and exciting projects that could push up their share prices.

NS&I’s Premium Bonds rate is the return you’d get if you had average luck. It is influenced by what happens to the Bank of England’s base rate and in the wider savings market.

While a tiny percentage of Premium Bond savers will become millionaires, the average holder will receive this underwhelming rate, and you might get even less – or nothing at all.

Midas has picked four stocks that surpass the Premium Bonds rate, generate enough cash to underpin their dividend payouts and could give you a healthy capital gain.

Unlike Premium Bonds, the value of your investment could go down as well as up, but at least your dividend payouts will not rely on the luck of the draw.

While a tiny percentage of Premium Bond savers will become millionaires, the average holder will receive an underwhelming rate, and you might get even less – or nothing at all, writes Rosie Murray-West

Legal & General

8 per cent yield

The highest-yielding stock in the FTSE 100 at present, insurance and finance giant Legal & General yields a whopping 8 per cent.

L&G divides itself into three businesses: retail, institutional and asset management.

The retail side is the part most of us are familiar with, ranging from workplace pensions to equity release, mortgages and life and illness insurance.

Legal & General is the highest-yielding stock in the FTSE 100 at present

On the institutional side, L&G works with large defined-benefit pension schemes in the US and UK, helping companies with old schemes to manage their risks.

While chasing the top possible dividend yield is not always wise – it can sometimes indicate that a company’s finances are weak – experts say L&G is financially strong. When it comes to insurance companies, returning cash to shareholders through dividends is very much the norm, with rival Aviva also yielding an attractive 5.8 per cent.

Russ Mould, investment director at AJ Bell, says L&G faces challenges, including the competitiveness of the life insurance industry. However, he says the markets it

is positioned in are growing over the long term, and the company has a strong balance sheet. L&G is expecting to grow its earnings per share by 6 to 9 per cent up to 2027.

Traded on: Main market Ticker: LGEN

Persimmon

4.5 per cent yield

One measure of whether a payout is safe is what is known as ‘dividend cover’ – how many times the annual sum paid out to shareholders is covered by profits.

Richard Hunter, head of markets at investing platform Interactive Investor, reckons that 1.5 times dividend cover is ‘comfortable’, which is exactly what housebuilder Persimmon offers on a yield of 4.5 per cent.

But as well as a payout that far exceeds the Premium Bond prize rate, Persimmon investors have other reasons to be cheerful.

Jack Fletcher-Price, an analyst at Morningstar, says that it is his top pick among the builders set to benefit from Labour’s development strategy because it builds lots of lower-value homes, which he believes is helpful due to affordability pressures.

Housebuilder Persimmon’s shares are up 28 per cent since April – but could go even higher 

Although Persimmon shares are up 28 per cent since April, he expects them to go even higher.

Midas agrees with his assessment that there is a ‘rewarding decade ahead’ for major UK housebuilders, and the dividend yield means that you are being paid to wait for the sector to come back into favour.

Traded on: Main market Ticker: PSN

Hargreaves Services 

5.4 per cent yield

Last week’s trading update from Hargreaves Services pushed shares up nearly 9 per cent in a week, and investors who bought this time last year have seen a rise of more than 30 per cent.

Even if you’re buying in now, there’s income of 5.4 per cent a year to be had from a company firmly in the sweet spot of the Government’s priorities.

Hargreaves regenerates brownfield sites for residential or commercial development and does specialist groundwork.

It has also done well out of the seemingly endless HS2 project (all of those billions that the Government is spending have to go somewhere).

British American Tobacco is still throwing off cash to investors, and that means it has a prospective yield of 6.6 per cent, says Rosie Murray-West

The pre-close trading update said profit before tax would come in 7 per cent ahead of expectations when next results come in.

The shares are also AIM listed, so your estate would save 50 per cent on inheritance tax on them once they’ve been held for two years.

Traded on: Aim Ticker: HSP

BAT 

6.6 per cent yield

British American Tobacco is still throwing off cash to investors, and that means it has a prospective yield of 6.6 per cent, as well as a programme of share buybacks.

BAT now prefers to brand itself a ‘consumer goods business dedicated to stimulating the senses of adult consumers worldwide’, rather than a cigarette maker.

So along with cigarette brands Pall Mall, Lucky Strike and Dunhill, it makes vapes and tobacco-heating products. Its Vuse product is the world’s number one vape brand.

Nonetheless, four fifths of sales come from standard ciggies, which are in decline.

So it’s only a buy for the brave, especially given the shares are up nearly 17 per cent since January.

Traded on: Main market Ticker: BATS