High-yielding dividend stocks are one of the greatest ways an investor can boost their wealth.
Indeed, many investors who have their savings stuck in "risk-free" asset classes are actually losing money as a result of not covering the cost of tax and inflation.
Dividend-paying stocks, on the other hand, provide a steady and regular source of income. They often come with tax benefits in the form of franking credits attached, while there is always the possibility of significant capital gains as well. All in all, high-yielding dividend stocks remain the go-to investment for income seekers. However…
There is so much more to consider than a simple dividend yield.
Over the last year, it seemed as though investors forgot about the importance of 'valuation' and simply flocked towards the highest yields they could get their hands on. Indeed, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) rose to its highest level in nearly six years while each of the big four banks became wildly overpriced. The same could be said for other popular options such as Woolworths Limited (ASX: WOW).
While a dividend can be a huge factor in an investment decision, it is important to remember that if the stock is overpriced, then the dividend is virtually worthless. After all, there's no point in investing for the dividends if the stock price is likely to go backwards.
Compelling opportunities
There is good news, however.
The market's recent setback has given us an opportunity to re-explore the dividend market and pick up companies trading at far more attractive prices. Just like the next investor, I love a bargain…
While I'm still not considering a move into one of the major banks or supermarket players, I certainly have my eye on a few high-yielding stocks in particular.
Right now, I'm particularly keen on beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL).
Before you ask: yes, I have read the news. I'm well aware of the struggles the business is facing. But I'm also very aware of just how strong the company's brands are, how committed its management team is to turning the ship around, and just how much potential this company has in the long term. As a shareholder myself, I'm more than willing to wait for that time, and can enjoy the stock's tasty 5.2% dividend yield, franked to 75% in the meantime.
Two companies that I don't yet own but are sitting atop my watchlist right now are Insurance Australia Group Ltd (ASX: IAG) and M2 Group Ltd (ASX: MTU). Despite being one of Australia's top insurers, Insurance Australia Group has somehow been overlooked by investors and currently trades on a forecast P/E ratio of just 12.4x. Meanwhile, M2 Group is one of Australia's fastest growing telecommunications companies with an enormous runway for expansion ahead. The pair yield a grossed up 9% and 4.7% respectively.
