10 of the ASX’s best dividend plays

Forget your term deposit, the stock market is serving up some truly spectacular returns.

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Investing is all about the risk-return relationship, yet many Australians insist on keeping their money in term deposits, thinking they are a great place to grow their wealth. With interest rates so low, not many investors are being fooled by the banks and are looking elsewhere for a safe high yield return.

So which Australian stock is the best value for money? Here are 10 of the best S&P/ASX200 (ASX: XJO) (Index: ^AXJO) listed stocks, with over 6% dividends — and all are well established companies.

Traditionally, companies with large market capitalisation pay higher dividends because growth is more difficult. Property stocks like Westfield Retail Trust (ASX: WRT) are an example of this, with a market cap of almost $9 billion, it pays an unfranked dividend of 6.6%.

Telstra’s (ASX: TLS) dividend is legendary but its recent price rally squeezed the dividend to almost 5%. Since its low, it’s regained some lost ground and is now offering a fully franked return at 6.2%. With the safety of a huge market capital and existing customer base, investors could do a lot worse.

Envestra (ASX: ENV) is a energy play with a market cap of over $1.6 billion, that pays handsome dividends of about 6.3% but may also offer up long term growth. Since the GFC, the company has returned over 204% on its share price and in the first half of this financial year reported NPAT up 45%.

Out of the top 20 stocks on the ASX, NAB (ASX: NAB) currently has the highest fully franked return of around 6.4%, followed closely by Westpac (ASX: WBC), which sports a 6.2% return. At current prices both offer security and stability through huge market capitals and healthy price to earnings.

Outside the big four banks, the Bank of Queensland (ASX: BOQ) and Bendigo and Adelaide Bank (ASX: BEN) pay fully franked dividends with yields of 6.4% and 6.1% respectively. Both have stable business models and are trading at discounts from their May highs.

Perhaps the best dividends can be found in the retail sector. However, forget the two biggest retailers, they’re both overpriced and under delivering when compared to what some other stocks have in store. David Jones (ASX: DJS) has had a rough first half in sales but pays a 7.0% dividend fully franked. It is perhaps only trumped by Myer’s (ASX: MYR) 8.4% yield.

Another company in the retail sector that has been hiding in the shadows of many investors’ portfolios is Metcash (ASX: MTS). After yesterday reporting a full year profit hike of 6.9%, investors can no longer avoid its potentially huge long-term upside and 8% fully franked return. With management constantly on the prowl for new acquisitions and expansions, this stock definitely deserves a spot on your watchlist.

Foolish takeaway

Whether trading for options or searching for dividends, the underlying principle is you should buy what you want to own. Foolish investors understand that you must take your time and focus on more than just income when looking at stocks. But why shouldn’t you be rewarded for risking your money to the market? In the long term, dividends can have a huge impact on your portfolio but investors should also be looking for good business models, management and demand for the company’s products and remember to buy in at the right price.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Owen Raszkiewicz owns shares in Metcash and Myer.  

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