The difficulty for investors seeking high-yielding, dividend-paying stocks is determining how maintainable the earnings and, hence the dividends, are.
For example, while it is easy to skim the share tables and find stocks trading on 9% yields, the 9% refers to the previous 12 months and often will not be a reliable indicator of the company's ability to pay the same level of dividend in the coming 12 months. As usual, if it looks too good to be true, then it probably isn't true!
One sector particularly prone to this 'too good to be true' tag at the moment is the mining services sector. This sector has enjoyed a number of good years, categorised by increasing revenues, expanding margins and higher earnings. This tailwind came to an abrupt end earlier in the year, which in turn sent many share prices tumbling and historical yields surging.
The outlook for the next 12 months is far less rosy, with many firms such as Ausdrill (ASX: ASL), which has just provided updated guidance to the market, expecting significantly lower earnings. That will have a dramatic effect on the company's ability to pay the same rate of dividends going forward.
With the above thoughts in mind, here are four companies that should be able to not only maintain but grow their dividends this financial year and on current prices are trading on dividend yields above 6%.
- Ardent Leisure (ASX: AAD) is forecast to increase its dividend from 12 cents per share (cps) to 13.3 cps in the current financial year. At $2 per share, this places the stock on a dividend yield of 6.65%.
- BWP Trust (ASX: BWP) is forecast to increase its dividend from 14 cps to 14.6 cps. Currently trading at $2.28, this places the stock on a yield of 6.4%.
- DUET Group (ASX: DUE) is forecast to increase its dividend from 16.5 cps to 17 cps. Currently trading at $2.17, this places the stock on a yield of 7.8%.
- Prime Media (ASX: PRT) is forecast to increase its dividend from 7.3 cps to 7.6 cps. Currently trading at $1.03, this places the stock on a yield of 7.4%.
Foolish takeaway
The difficulty of identifying companies with maintainable, defensive dividends has led many investors to Telstra (ASX: TLS), which is quite understandable in this low interest rate environment. However as the above ideas show, there are other opportunities available that may be even more appealing to some investors.
