The S&P/ASX200 (ASX: XJO) (^AXJO) looks to be headed into market correction territory and with all the fallen prices, some stocks are waiting to be scooped up by savvy investors. Whether you want income, capital returns or both, the ASX is serving them up.
First-class dividends have been few and far between in recent weeks as investors went in search of high yields, it inflated prices to unreasonable levels. For example, Telstra (ASX: TLS) renowned for its 28 cent dividends rose to 5-year highs on the back of only 8% growth. However, since May 1 its dividend has been largely restored and at current prices pays approximately 6.1% fully franked.
All of the big 4 banks offer dividends over 5% fully franked, but there is speculation Suncorp (ASX: SUN) will pass on more than 60%-80% of earnings to shareholders and return any extra capital from a $1.6 billion sale of bad debt to investment bank Goldman Sachs (NYSE: GS). This is likely due before the end of the year in the form of a “special” dividend.
Whether you’re buying stocks for growth or income, it’s important to buy at the right price and analyse market cycles. With a falling Aussie dollar, companies that operate overseas and in the US in particular, should outdo the others who import and require higher exchange rates. Brambles (ASX: BXB) and Resmed (ASX: RMD) are two stocks likely to benefit from the declining dollar and have both risen over 50% in the past year but with the dollar falling further, perhaps they could go even higher.
If the recent conditions have taught anything, it’s that small and large cap stocks can provide growth and income. Two small caps that have truly outdone the market in terms of growth are Collection House Limited (ASX: CLH) and Air New Zealand (ASX: AIZ) but both also pay great dividends. Bigger companies like Seek (ASX: SEK), Suncorp and M2 Telecommunications (ASX: MTU) have the weight of investor expectations on their shoulders but will pay a fully franked return while you wait for the growth.
It’s important to buy stocks at good prices, as the market has shown us in recent times, even good companies can be punished in a correction. Market volatility will come and go so it’s important to focus on the horizon and only buy companies you will feel comfortable holding while you sleep at night, even if they drop 15% — just remember why you bought them.
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Motley Fool contributor Owen Raszkiewicz owns shares in Suncorp, Metcash and Air New Zealand.