When stocks are beaten down, many investors can fall for big trailing dividend yields and modest price-earnings ratios, but as seasoned investors know, there's more to an investment case than a simple ratio and dividends.
With interest rates at record lows – with the possibility of going lower – investors are busy searching for the next big yield play. These five companies offer dividends which far outpace the big banks and supermarket giants.
The first stock to boast a huge 8.1% fully franked dividend is Pacific Brands Limited (ASX: PBG). After a couple of turbulent years of trading, the owner of Bonds, Rio, Hard Yakka, Razzamatazz, Jockey, Mossimo and Holeroof Explorer – just to name a few – could be entering a tailwind, with consumer confidence set to return to markets and investors wanting big dividend stocks.
WAM Capital Limited (ASX: WAM) is a company with the smallest dividend on this list. It pays out 6.2% plus 100% franking. It is a fund manager which invests in Australian equities. As the market climbs higher more investors will go in search of its expertise which will likely result in higher earnings.
Online hotel and flight booking site, Wotif.com Holdings Limited (ASX: WTF) recently suffered a significant hit to its share price when it gave a reduced earnings guidance for FY14. The share price crashed by well over 30% and it now trades on an earnings multiple of 10. Although its trailing 8.9% dividend might fall slightly in 2014, investors have now priced in the competitive pressures the company faces.
In the technology space, Melbourne IT Limited (ASX: MLB) and DWS Ltd (ASX: DWS) are some of the biggest yield plays currently on the market. DWS earnings are currently under pressure from the significant headwinds facing the industry including, most notably, a drop in IT spend by government and big business. Despite the current headwinds, DWS has a trailing dividend yield of 8% fully franked, which might drop only slightly in 2014.
Melbourne IT has come into the spotlight after it announced it intends to payout a whopping $0.54 cents to shareholders as a capital return. Given the stock currently trades at $1.92 that gives the one-off payout a yield of 28% just by itself. Melbourne IT has a reputation for paying out strong dividends and its regular payout is around 14 cents per share annually (however it'll likely drop in the year ahead). What's more, management have said the capital return does not adversely impact upon the financial position of the company and its growth objectives, including acquisitions.
