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Dividends are getting higher as the ASX falls

Investors are selling off good quality stocks as markets become jittery on news about US quantitative easing programs, slowing Chinese growth rates and the Aussie dollar plunging. However, they have forgotten something very important — they’re getting rid of good quality stocks with dividends that will smash the banks’ interest rates!

Possibly Australia’s two safest stocks paying high dividends are Telstra (ASX: TLS) and Commonwealth Bank (ASX: CBA) and both are getting more lucrative the lower the S&P/ASX 200 (ASX: XJO) (Index: ^AXJO) drops. CBA and Telstra both pay fully franked dividends of 5.1% and 6%.

CBA has fallen over 2.5% today while Telstra has followed it down 1%. The good thing for savvy investors is that both stocks will be around tomorrow, and the day after that and the day after that. Perhaps maybe, just maybe the companies will also be around in 10 years which says to me that investors selling today are willing to forego between 50% and 60% worth of dividends plus franking credits in that time.

Of course there always comes a time to sell and it is well justified when you’ve made enough to be happy to walk away, but there are those willing to dump their money in a term deposit hoping to get a good return only for the slightest peace of mind. If history has taught us anything about investing, it is that their strategy is wrong.

In the last 10 years, the local stock market has risen about 58% PLUS dividends, despite the GFC and a housing boom taking people’s money, whereas bank accounts have remained the same (although they may have added a few extra fees).

Foolish takeaway

Short-term predictions of stock prices is similar to punting or gambling and involves pretty much an educated guess. That’s why savvy investors look to the long term and buy companies today that they’ll sell in 5 or 10 years’ time and take their dividends while they commit their cash to the market. Suncorp (ASX: SUN), ANZ (ASX: ANZ), Westfield (ASX: WDC) and Woodside (ASX: WPL) are great companies that pay awesome dividends and have a steady but long upside ahead of them, don’t be the one who misses out.

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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ and Suncorp.

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