Despite a surging stock market which has seen the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) rallying 26% in the past 18 months there are still a few select opportunities for income-seeking investors to buy 'blue chip' stocks trading on trailing dividend yields of over 5%.
In many cases a trailing yield may not be a reasonable 'base case' assumption for a company's forward dividend yield. However given the market position and sound earnings base of the following four 'blue chip' stocks, investors should have a reasonable degree of certainty that these firms will at least be able to maintain their current payouts, if not raise them over the next 12 months. Indeed this is one factor that makes 'blue chips' so attractive to investors.
Based on Monday's closing price:
- AMP (ASX: AMP) is trading on a trailing dividend yield of 5.2% which is fully covered (1 times) by earnings.
- Insurance Australia Group (ASX: IAG) is trading on a trailing dividend yield of 5.9% which is also fully covered by earnings.
- National Australia Bank (ASX: NAB) is trading on a trailing dividend yield of 5.5% and is 1.2 times covered.
- Telstra (ASX: TLS) is trading on a trailing dividend yield of 5.45% and is 1.1 times covered.
With the exception of AMP, whose share price has trailed the index and only increased by 10.7% in the past 18 months, IAG, NAB and Telstra have recorded share price gains of 76.6%, 39.7% and 43.2% respectively. It is interesting to note that despite these enormous share price gains, the stocks still trade on dividend yields of over 5%.
Foolish takeaway
Just as investors should not blindly search for yield at the expense of capital gains, investors should also not ignore the opportunity to re-adjust their portfolio after significant run-ups in the market. Rebalancing a portfolio into relatively cheaper stocks — including stocks paying relatively higher yields — is an important aspect of sound portfolio management.
