High-yielding dividend stocks are a great way to build wealth. Here are six of my favourite, all paying dividends that I believe are sustainable over the long term. Advanced Share Registry (ASX: ASW) handles the administrative needs of listed companies. Like Computershare (ASX: CPU), Advanced Share Registry sends out correspondence to shareholders and manages corporate events such as annual general meetings. Advanced Share Registry enjoyed a period of growth prior to 2011. Since then, the company has struggled to grow revenues, but has maintained its customer base. The company is paying a reasonable dividend of just over 6% and I think…
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High-yielding dividend stocks are a great way to build wealth. Here are six of my favourite, all paying dividends that I believe are sustainable over the long term.
Advanced Share Registry (ASX: ASW) handles the administrative needs of listed companies. Like Computershare (ASX: CPU), Advanced Share Registry sends out correspondence to shareholders and manages corporate events such as annual general meetings. Advanced Share Registry enjoyed a period of growth prior to 2011. Since then, the company has struggled to grow revenues, but has maintained its customer base. The company is paying a reasonable dividend of just over 6% and I think that growth is just as likely as falling profits. I don’t think the company is particularly cheap, but it does have the advantage that its services aren’t particularly capital intensive. The company’s strong presence in Perth means it is well placed to serve West Australian mining companies.
Another company with exposure to Western Australia is SMS Management and Technology (ASX: SMX), it is one of the larger internet, communications and technology (ICT) consulting firms. The ICT consulting industry has experienced declining profits recently, in part because IT consulting is often not urgent. Therefore, government can postpone it when they are trying to reign in spending, and businesses postpone when they are hoping to boost the bottom line.
SMS has a strong balance sheet and has recently bought Birchman Asia Pacific for cash (rather than shares). Birchman is based in Perth and growth largely depends on the success of that acquisition. Personally, I’m cautious about consulting in general, because it is generally contract based. Nonetheless, the 6% dividend gives shareholders good reason to wait patiently for earnings growth to return.
Mighty River Power (ASX: MYT) is probably my favourite company on this list. It is one of the largest power generators in New Zealand, and derives a large portion of its energy from geothermal sources. Once geothermal plants are built, they continue to produce electricity for many years at far lower cost than burning coal or gas.
There is, however, some risk. One of the company’s major customers is an aluminium smelter that may not have a bright future, and in the short term at least, energy efficiency advances are likely to keep electricity prices low. Nonetheless, the dividend of about 6.1% makes Mighty River Power a reasonable choice for SMSF investors who are in the pension phase.
Those willing to accept volatility in search of capital gains should consider Logicamms (ASX: LCM), an engineering company that services the resources industry. As with most of the mining services sector, the share price has been volatile in 2013. The company competes with the likes of WorleyParsons (ASX: WOR), and indeed, certain key personnel have experience working for the engineering giant.
While there are good reasons to avoid the mining services sector altogether, I think that Logicamms is better placed than other companies in the sector because it serves producers rather than explorers. Furthermore, it has expertise managing the extraction of oil and gas, so the exploitation of coal seam gas on the east coast could benefit the company. Although I wouldn’t buy shares myself, Paradice Investment Management (a well-respected small-cap fund) has a significant holding. The share price is down over 40% since October and trades on a trailing yield of over 7%, fully franked. Although the dividend may be reduced, I suspect that it will remain over 6% for FY 2014.
A more attractive option is Australian Pharmaceutical Industries (ASX: API), which yields just above 6%, fully franked, at current prices. I looked quite closely at Australian Pharmaceutical Industries at the end of 2012, because it owns the low-cost chemists Priceline as well as the Soul Pattinson pharmacies. It’s therefore no surprise that Washington H Soul Pattinson (ASX: SOL) is a major shareholder holder of Australian Pharmaceutical Industries.
I like the company because I think that pharmacies are close to the best retailer you can invest in. With the aging population, demand for their products promises to grow, and the prescription system means that the internet is less of a threat to the business model. Most impressive, is the extensive customer loyalty program at Priceline, and this may give the successful chain a serious advantage. While the company does have more debt than I am comfortable with, I believe that the business is solid.
Finally, Wellcom Group (ASX: WLL) is another high-yielding company that has my attention. The business manages websites and online communications for blue chip clients. Increasingly, the company is moving from simply managing websites to actually creating them; and has improved its digital design offerings.
Wellcom Group has no debt, and is a consistent dividend-payer, currently yielding over 6.6%, fully franked. The company averages a return on equity of about 15% and has very wisely set up an office in Kuala Lumpur. This will reduce the costs associated with ‘manufacturing-type artwork,’ ensuring that the company can compete against low-cost overseas competitors. Wellcom Group is financially secure with no debt and about $15 million in cash.
Dividend payments are a convenient way of fulfilling the obligation to pay a pension from a SMSF, and receiving a dividend always makes it easier to patiently wait for capital gains. Although none of these companies are quite cheap enough for me to want to buy shares, all six definitely deserve a spot on your watch list.