The moniker of ‘blue-chip stock’ can have different meanings to different people, however it’s commonly considered to be reserved for stocks with market capitalisations in the billions and often market leaders in their particular industry.
For this particular screen I limited the field of candidates to the S&P/ASX 50 Index (Index: ^AXFL) (ASX: XFL). Next I removed any stocks that only pay unfranked dividends – I retained stocks that pay partly franked dividends. The removal of unfranked dividends essentially removes most (but not all) of the property sector stocks.
As it is important to look forward and not backwards, I considered the future yield that our portfolio can provide us with – not what it has provided in the past – I used analyst consensus estimates (from Morningstar) to forecast the expected dividend yield for the current financial year. This near-term forecast should be pretty accurate considering many of these top 50 companies have now declared either interim or final dividends during February. Here are the results:
1) Insurance Australia Group Limited (ASX: IAG): share price $5.60, forecast dividend 35.2 cents per share (cps), yield 6.3% fully franked (FF).
2) National Australia Bank (ASX: NAB): share price $34.87, forecast dividend 202.2 cps, yield 5.8% FF.
3) Telstra Corporation Ltd (ASX: TLS): share price $5.09, forecast dividend 29 cps, yield 5.7% FF.
5) Coca-Cola Amatil Ltd (ASX: CCL): share price $11.29, forecast dividend 60 cps, yield 5.3% partly franked.
Perhaps not surprisingly, most of the major banks and Telstra are some of the most desirable blue-chip stocks to own based purely on dividend yield. Insurance Australia Group meanwhile may look the most appealing based on yield, however the high rate may in fact be compensating for a forecast negative growth profile for its dividend in 2015, making Telstra and the banks look the better options over the next two financial years.