If you're like many other investors who are reliant on their portfolio to provide them with a steady stream of income to support their living costs then no doubt you are seeking high-yielding, income stocks.
There are a few points worth keeping in mind in your search for income stocks:
- For Australian registered taxpayers, fully franked dividends are more valuable than unfranked ones.
- A high historic yield is of no benefit (and indeed can be a trap) if the future dividend pay out decreases – therefore, identifying sustainable dividend payers is key.
- A company paying out close to 100% of their earnings as a dividend (or using debt or reinvestment plans to support the dividend) leaves shareholders with a slim margin of safety. Many investors would probably be surprised to learn that perennial favourite Telstra Corporation Ltd's (ASX: TLS) dividend is covered just 1.25x.
Arguably, amongst the best ways of picking your dividend stocks is to identify stocks with the ability to dramatically raise their dividend payments in the future. While their current yields may not appear exciting, look forward a few years and they might be!
Another way is to focus on how well covered a dividend is by a company's earnings. By doing this, not only do you essentially buy added protection so that the purchase yield will be maintainable, but also it can open up a "free kick" if the board elects to retain less earnings for growth initiatives and instead returns these funds to shareholders.
Here are 4 dividend stocks that could be worth further investigating…
- Avjennings Ltd (ASX: AVJ): forecast earnings per share (EPS) 7.3 cents per share (cps); forecast dividend per share (DPS) 3.5 cps; covered 2.1 times.
- Villa World Ltd (ASX: VLW): trailing EPS 21.4 cps; trailing DPS 15 cps; covered 1.4 times.
- Patties Foods Limited (ASX: PFL): trailing EPS 12 cps; trailing DPS 7.1 cps; covered 1.7 times.
- Austbrokers Holdings Limited (ASX: AUB): trailing EPS 59.3 cps; trailing DPS 38.5 cps; covered 1.5 times.
