According to prominent economists and market commentators, interest rates will remain low throughout 2014. Sub-par economic growth and a resilient Australian dollar are putting pressure on the Reserve Bank of Australia to at least keep the official cash rate where it is.
For some (especially those with mortgages) a low interest-rate environment helps us to keep on top of our monthly budgets, but for others it means pulling our nest egg from fixed-income streams and investing in the stock market.
When interest rates drop businesses are able to borrow and invest more money which should pay dividends for shareholders in the long run. This in turn makes the stock market the ideal place to park some of your hard-earned cash while you wait for fixed-income options to rise. But what stocks should you buy?
Below are three stocks I believe will pay great dividends in 2014.
In my opinion it's hard to go past Telstra (ASX: TLS) as a dividend play, both in terms of its high yield and safety. I expect it to grow earnings by strong single-digits in 2014 and also increase its dividend. With growing cash flow and higher earnings, Telstra deserves its moderate price tag and is still a great buy for long-term and dividend-hungry investors. It currently yields 5.4% fully franked.
In the retail market, low interest rates provide a boost for both consumers and businesses. Cash Converters (ASX: CCV) is a cyclical retail stock that also provides short-term loans to retail customers. This means it can grow strongly in a low interest-rate environment when demand for credit is high. Recently the company suffered a number of setbacks in its share price but at under a $1.00, it yields 4% fully franked and has room to grow.
WAM Capital (ASX: WAM) is an investment company that buys Australian shares. Although managed funds have high fees and no guarantee of returns, investors can buy the company's stock and enjoy the huge dividends it pays to shareholders. Currently it yields 6.1% fully franked.
Foolish takeaway
If you're in the market for high-yielding dividend stocks, first and foremost you must look at the price of a company's shares and its ability to grow profits. Identifying companies which have solid growth prospects also decreases your chances of making a capital loss, something that could quickly take away the benefit of a fully franked dividend.
