Perhaps one of the greatest flaws in Australia's superannuation scheme is the lack of a defined benefit. While the government of the day was keen to remove that 'liability' from employers, arguably it was a mistake to not create a system which catered predominately to provide superannuates with a steady, dependable pay-out over the course of their retirement.
The financial services company Challenger Ltd (ASX: CGF) is one of the few businesses to tap into this market through its offering of annuity investments – it's a trend which is likely to grow in the future, but for many retirees it will come too late.
So it's up to you, the individual, to secure your future and position your portfolio to provide a steady income.
It's for this reason that blue-chip stocks such as Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) are so popular with self-managed super funds (SMSF). Both companies operate very solid consumer retail non-discretionary supermarket businesses – these businesses offer shareholders steadily growing earnings and in turn the ability to pay steadily growing dividends.
But which company is the better dividend stock right now?
According to research conducted by Morningstar, earnings per share (EPS) at Wesfarmers are forecast to increase by 13.2% in FY 2015 and 11.9% in FY 2016, which is certainly an impressive growth rate. Meanwhile in FY 2015 a dividend of 220 cents per share (cps) is forecast to be paid.
With the shares currently trading at $42.86 this implies a FY 2015 fully franked dividend yield of 5.1% and a price-to-earnings (PE) ratio of 19.3x.
In comparison, Woolworths is forecast to grow EPS by just 5.9% and 5.3% over the coming two financial years. The dividend is also forecast to rise by a similar rate, increasing from 137 cps in FY 2014 to 145 cps in FY 2015.
With a share price of $34.99, Woolworths' stock is trading on a forecast FY 2015 fully franked dividend yield of 4.1% and a PE of 16.8%.
Wesfarmers looking good!
With a forecast yield which is 1% higher than Woolworths and also a significantly higher forecast growth rate, Wesfarmers looks the better opportunity for investors at current prices.
