4 stocks with dividend yields above 7%

With the official cash interest rate at 2.5% it’s no wonder investors are chasing high yielding stocks.

While the yields on many stocks have been squeezed due to continued investor demand for high-yielding stocks, if investors look hard enough they can still find a handful on very appealing high-yield investment opportunities.

1. Coventry Group (ASX: CYG) is a distributor of industrial products ranging from fasteners to fluids and gaskets and also operates the Coventry Fasteners chain of stores. The shares are currently trading at $2.77 — which is close to their 52-week low. In financial year 2013, Coventry paid 22 cents in dividends. Assuming this dividend level can be maintained going forward, then Coventry is trading on a dividend yield of 7.9%.

2. GUD Holdings (ASX: GUD) owns a number of well known Australian-branded products including Davey pumps and Oates household cleaning products. The shares are currently trading at $6.18. GUD previously held a stake in Breville Group (ASX: BRG), which it sold in early 2012. This sale provided funds allowing GUD to pay special dividends. Investors should not expect any more special dividends going forward, which means a lower dividend in FY 2014 is expected than the 72 cents per share (cps) paid in FY 2013. Morningstar is forecasting a dividend of 52 cps in FY 2014. Based on this forecast, GUD is selling on a dividend yield of 8.4%.

3. Prime Media Group (ASX: PRT) is a regional television and radio broadcaster. Its operations include the broadcasting of television station Prime7 into regional New South Wales and Victoria and the broadcast of 10 radio stations along the Queensland coast. The share price is currently trading at $1.02 and Morningstar is forecasting a dividend of 7.6 cps in FY 2014. This prices the stock on a dividend yield of 7.4%.

4. Salmat (ASX: SLM) is a marketing and communications company which amongst other things is responsible for many of the catalogues which find their way into your letterbox. The business has moved well beyond the letterbox however and now offers businesses multi-channel solutions to find, acquire and retain customers. With the share price at $2.07 and Morningstar forecasting a dividend of 15 cps in FY 2014 the stock is trading on dividend yield of 7.2%

Foolish takeaway

Investors need to be careful to not focus solely on dividend yield when selecting stocks for their portfolio. It is vitally important to also consider the long-term outlook for a company and to determine a conservative valuation for the company too. If a company doesn’t pass these measures an investors could be facing a capital loss that may far outweigh the dividends received.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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