Telstra Corporation Ltd, National Australia Bank Ltd. and Woodside Petroleum Limited: Should you buy?

We all know they've got big dividends but what else do Telstra Corporation Ltd (ASX:TLS), National Australia Bank Ltd. (ASX:NAB) and Woodside Petroleum Limited (ASX: WPL) have to offer?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Interest rates are low and big dividend yields are on offer from some of Australia's most reputable companies. So it makes sense to have some exposure to dividend-paying blue chips in the S&P/ASX 200 (INDEXASX: XJO), especially when inflation is a precarious 3%.

Not so fast…

Before you go and risk your hard-earned money in the stock market however, it's vital to consider more than just a dividend yield. As every seasoned investor knows, a company's dividend payment can quickly come under pressure if it cannot generate sustainable free cash flows. What's more, capital losses will quickly wipe-out any benefit of the proposed dividend.

Telstra Corporation Ltd (ASX: TLS) is a company many investors think of when dividends are brought up. Thanks to competitive advantages in a number of markets, it boasts enviable profit margins and large cash flows. However with the stock price rising over 80% in the past three years it's no longer a standout buy. Investors should look for other, cheaper, dividend stocks available on the market.

National Australia Bank Ltd. (ASX: NAB), like Telstra, is also offering a big dividend yield, currently 5.7% fully franked. The problem for NAB shareholders is the bank's UK exposure which continues to face risks outside the bank's control. In my opinion, until NAB can sort out its mess and pay down bad debts (which they appear to be doing), the risks of capital loss on its shares are very real.

Lastly, Woodside Petroleum Limited (ASX: WPL) has also been paying out big fully franked dividends over the past 12 months and its share price has reacted accordingly, up 13%. However, some analysts have begun to question whether the stock is currently overpriced and, according to Morningstar's analysts' consensus forecasts, dividends per share are expected to drop in coming years. If the payouts do indeed fall, it's unlikely the share price will hold up at today's prices.

Our #1 dividend stock idea – Yours FREE!

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned in this article.  

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »