One of the perks of being a long-term investor is the dividend, which can make up a sizeable portion of a stock's total return for the year. Without it you wouldn't have anything to counteract the rate of inflation that eats away at your earnings on an annual basis. Investing in a growing stock will see your dividend grow as well.
BWP Trust (ASX: BWP)
Is a real estate investment trust (REIT) that owns and manages the property sites of Bunnings Warehouse stores, which are owned by Wesfarmers Ltd (ASX: WES). BWP has a dividend yield of 6.24% and a payout ratio regularly in the high 90% range.
NPAT has been steadily growing, up over 100% over the past three years to $110.5 million. As the Bunnings franchise spreads out to more communities, the trust will add the new sites to its asset portfolio. Watch for Bunnings store openings through their website or keep up-to-date by reading reports for openings and closings.
Insurance Australia Group Limited (ASX: IAG)
The $12.8 billion general insurance group, which operates brands such as NRMA and CGU, has a 6.44% dividend yield and a payout ratio of 72%. In 2013, underwriting profit rose to $1.16 billion, the highest over the past 10 years and coupled with its $711 million investment income, NPAT came out to be $1.16 billion.
In December it announced that it will acquire the Australia and New Zealand underwriting operations of the insurance division of Wesfarmers for $1.845 billion. The sale agreement includes the underwriting operations for Coles insurance, which will continue with Coles supermarkets under an agreement with a remaining 10-year term.
This month it revised its FY 2014 guidance, increasing its expected insurance margin to 14.5% – 16.5% from its earlier 12.5% – 14.5% guidance. In addition, it anticipates an insurance margin of around 17.5% for the six months ended 31 December, 2013. It will report on 21 February.
Monadelphous Group Limited (ASX: MND)
The engineering company servicing the resources, energy and infrastructure industry sectors and has a dividend yield of 8.32%. It has seen a big sell-off in its share price since February 2013, when it was $28.48. Now at $16.47, it is up 12% from its mid-December low of $14.70.
The mining industry pullback was a major issue in 2013, but could be an overreaction to the downside? Its work on oil and gas projects moves on with a new $100 million contract awarded to construct a gas pipeline to hook up Fortescue Metal Group Limited's (ASX: FMG) Solomon Hub power station to the Dampier-Bunbury pipeline network owned by Duet Group (ASX: DUE). The oil and gas sector is one of the top three sources of revenue for the company, and more future projects will move ahead due to the growing LNG industry.
Foolish takeaway
Dividend yields sometimes expand because of short-term setbacks or market fluctuations, so when you see a high yield, you have to understand why it has gone up and how sustainable it is. If after declaring a certain amount of dividend to be paid out the company's earnings suffer in the subsequent half year or full year, the declared dividend can drop accordingly.
The opposite is also true when earnings rise, so next reporting season your yield may expand. The most important thing is the performance of the company and its earnings.
