With dividends in excess of 5% being quite common on the ASX and the added benefit of franking credits attached to most payments, the possibility of achieving a 10% annual return on your investments is real. And if you do your bidding through a self-managed superannuation fund (SMSF) and hold your investments for more than a year, capital gains taxes can be minimised.
Three companies which currently pay excellent dividends and boast modest long-term growth potential are Australia and New Zealand Banking Group (ASX: ANZ), Collins Foods Ltd (ASX: CKF) and Lindsay Australia Limited (ASX: LAU).
ANZ is forecast to pay a 5.6% fully franked dividend (8% grossed-up) in the coming year with earnings also set to improve over the short term as the group's 'Super Regional Strategy' starts to gain traction. If ANZ can draw 25% to 30% of revenues from APEA markets (Asia, the Pacific, Europe and Americas) by 2017 then it'll likely prove to be a great bank stock to hold for the ultra-long term.
However, ANZ shares don't come cheap and despite falling 7% in the past month (we warned about overpaying for bank stocks on many occasions), its stock price is still not at a level I'd be willing to pay.
Collins Foods is a small-cap stock which owns and operates KFC and Sizzler stores throughout Australia. The company has been aggressively growing its portfolio of KFC stores since listing in 2011 and has grown earnings per share ever year. Management recently said the group entered the 2015 fiscal year on a strong footing with revenue and NPAT up strongly in the first quarter. In the next year, analysts are expecting a 5.2% fully franked dividend (7.4% grossed-up).
Lindsay Australia is an even smaller company than Collins Foods (it has a market capitalisation under $100 million), but in the past decade has achieved an average annual total shareholder return of 10%. Lindsay is a family run transport company with a history of delivering excellent service, which is exemplified by the group's ability to maintain the same customers for many years. Its major shareholders include big names like Amcor Limited (ASX: AMC) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). The company's stock currently trades on a trailing dividend yield of 5.3% fully franked.
Buy, Hold, or Sell?
