If you’re in the accumulation phase of your financial life you can’t afford to take huge risks in your portfolio nor can you afford to miss out on market beating returns year-in year-out. When investing in ‘core’ stocks — those that should make up the majority of your portfolio — it’s important you chose the right companies since they could make or break your investing strategy.
Stocks with high yields have been a market favourite in recent months but investors know a potential revenue stream means nothing if company can’t turn a profit and subsequently drops 25% in value before a dividend can be paid. In May this year we’ve seen the big banks and Wesfarmers and Woolworths drop more than 10% as shareholders reacted to a surge in blue chip prices and decided to take profits.
For both income and steady growth, ANZ (ASX: ANZ) and Telstra (ASX: TLS) are this Fool’s favourite blue chip ideas for self-managed super funds. Their organic growth and market dominance will set them apart from rivals in coming years. Telstra’s competitive advantage in mobile and broadband market and ANZ’s Asian growth prospects are something this Fool thinks is worth being part of.
Investors are sometimes very cautious about spending big for companies outside the S&P/ASX 20 (ASX: XTL). However big companies can be just as risky as their smaller counterparts and size isn’t the only thing that matters. Retail stocks like Metcash (ASX: MTS) and RCG Corporation (ASX: RCG) are proving that it’s how you manage your portfolio that’s important. Respectively, they pay fully franked dividends of 8% and 5.5%.
Although they have a smaller market capitalisation, both stocks have strong EPS and debt levels. Neither stock has a Debt to Equity (D/E) ratio above 50%, but both could be considered cheap from a valuation perspective. Given their high yields, they won’t last long at this price.
If you’re looking to grow your wealth, don’t leave your money cooped up in a term deposit or interest account; make your money work for you. Even though stocks may carry more risk, taking advantage of great dividends and good companies with healthy balance sheets will help you achieve financial freedom.
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Motley Fool contributor Owen Raszkiewicz owns shares in Metcash, ANZ and Myer.