3 stocks with high and growing dividend yields

While many companies will be forced to pay out lower dividends over the next year, these 3 should manage to grow theirs.

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There are many tricky things about investing, not the least of which is a need to gain insights into the future economics of a firm. The investor must then forecast the future earnings that firm will produce, with a reasonable degree of accuracy.

While achieving accuracy when forecasting is rarely “pinpoint”, achieving a reasonable estimation and indeed just getting the direction right is attainable.

The yields on the following three stocks have been determined based on analyst consensus forecasts. While ultimately the forecasts might not be pinpoint accurate, the fact that each company is expected to raise their dividend this financial year (FY) should provide investors with some comfort.

1) Automotive Group Holdings Ltd (ASX: AHE) is Australia’s largest automotive retailer with more than 150 car and truck dealerships across Australia. Having paid out 20 cents per share (cps) in dividends in FY 2013, the company is forecast (according to Morningstar Research) to raise the dividend to 21.5 cps in FY 2014. With the share price at $3.57, the stock is trading on a fully franked dividend yield of 6.02%.

2) Skilled Group Ltd. (ASX: SKE) provides recruitment and staffing solutions to a broad range of industry sectors including nursing and marine. Skilled is forecast to raise its fully franked dividend from 16 cps to 16.5 cps. At a share price of $3.16 this equates to a forecast yield of 5.22%.

3) Premier Investments Limited (ASX: PMV) owns and operates a range of specialty retail fashion chains including Portmans, Just Jeans and Peter Alexander. In FY 2014 Premier is expected to raise its fully franked dividend to 40 cps from 38 cps in the prior year. With the stock price recently trading at $7.72, the implied yield is 5.18%.

Foolish takeaway

Above average and growing yields are indeed enticing, but investors also need to make sure they are not overpaying. Focusing on yield without considering valuation is unlikely to bring long-term investment success.

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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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