My top 5 dividend stocks for 2014

Confidence is slowly returning to global markets and Australia’s central bank will keep interest rates low to encourage spending.

In 2014 dividend stocks will be demanded by both ‘mum and dad’ and foreign investors alike. Low interest rates will push money from term deposits and bank accounts into big name stocks and international investors will enjoy a lower Australian dollar.

Although, I’ll admit the S&P/ASX 200 Index’s (^AXJO) top blue chip dividend stocks are pricey (and unlikely to significantly outperform the index in the next 12 months) they will be in demand. But if you’re looking for 2014’s top income plays this Christmas, you might just have to look a bit further down the index. Here’s my top 5 income plays for the next year.

#5 Cash Converters (ASX: CCV) is the leading second-hand dealer of goods in Australia and has even more stores in the United Kingdom. Recent changes in consumer lending domestically has posed challenges and put a minor roadblock in front of Cash Converters’ management. However with the recent setback in its share price and healthy balance sheet, I believe it’s a great time to buy this income and growth play. It has a trailing dividend of 5% fully franked.

#4 The IT services space has made for tough investing in the past few years but Data#3 (ASX: DTL) has grown stronger and continued to pay out a great dividend. It has good debt levels and plenty of room for growth. It pays a 6.8% fully franked return, which is likely to remain constant in coming years.

#3 Telstra (ASX: TLS) has a legendary 28 cent dividend but a recent run up in its share price has lessened its appeal. Even at current prices however, it still pays a 5.6% fully franked dividend. In addition I’m expecting modest increases in its payout in the next year.

# 2 WAM Capital (ASX: WAM) has gone through 2014 without becoming overpriced which is quite surprising given the rise of the Australian share market and its high dividend yield. The company is an investor in other Australian shares. It has continued to pay a rising dividend stream and has subsequently seen its own share price go higher. If you’re betting the Australian stock market will do well in 2014, this could be a great way to get in on the action. It pays a trailing 6.4% fully franked dividend.

#1 Stable dividend returns rarely come from small growing companies without sustainable earnings (think small-cap mining, resources, etc). If you don’t like surprises perhaps BWP Trust (ASX: BWP) could be what you’re looking for. Although it doesn’t pay a dividend with franking, Bunnings Warehouse Property Trust has one of the most renowned dividend yields I know. It currently pays 6.6% unfranked and has increased or paid out the same dividend over 98% of the time it’s been on the market.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Cash Converters. 

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