Everyone wants security, growth and income from their investments.
So the tendency for investors to focus on the most popular companies in our everyday lives is not uncommon. After all, if you use their services, others probably do as well – and naturally we think that will make them a more reliable investment.
Telstra Corporation Ltd (ASX: TLS), Rio Tinto Limited (ASX: RIO) and Flight Centre Travel Group Ltd (ASX: FLT) are three prominent Australian businesses currently boasting dividend yields well in excess of the measly 2.3% to 2.5% on offer from term deposits.
Should you buy Telstra, Rio Tinto and Flight Centre shares?
Of course, savvy investors know that a lot more than a simple assessment of dividend yield and market size goes into making successful investments.
Let's quickly run the ruler over each company and see – if any – are right for your portfolio.
Telstra
Telstra is one of the most reliable blue-chip dividend stocks on the ASX. Large profit margins within the Mobiles, Fixed Line and Fixed Data businesses have helped Telstra generate strong cash flow which is now being reinvested in new growth areas locally and abroad. While local investors will likely buy Telstra shares for their dividend, the stock is certainly not a 'sure thing'. Indeed, at today's prices, I'd rate it as a hold.
Rio Tinto
Rio Tinto is Australia's largest iron ore miner, a major copper and bauxite producer. Since the Global Financial Crisis, Rio shares have struggled to keep pace with the market. Write-offs in the aluminium business and a recent plunge in major commodity prices have each hurt the company's profits and reputation. Looking ahead, however, the results could get worse before they get better. Indeed, a transitioning Chinese economy and oversupply of iron ore, copper, coal and uranium will likely keep market prices down for many years.
Flight Centre
Shares of Flight Centre recently took a big hit following the apparent loss of 0.3% market share in the local leisure travel sector. While the short-term outlook for overseas travel may be tougher for Australians given the lower dollar and a slowdown in the economy, Flight Centre is well placed to meet these short-term challenges in my opinion. It has a huge cash balance, growing international store network and a capable management team.
Should you buy, hold, or sell?
Telstra is a great business, but at today's prices it looks like a hold. Rio Tinto is facing some considerable headwinds over the next five years, and in my opinion it's a sell. Finally, Flight Centre will likely be volatile in the short term. However, it's growing overseas exposure, industry-leading position locally and strong balance sheet give me confidence it'll prove a worthwhile business to hold over the long term – therefore I think it's a decent buy.
