5 of the best income-paying stocks to smash low rates and rising inflation

Which oil and gas giant pays a fully franked 5.6% yield and trades more than 30% below Morningstar’s fair value estimate?

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Given the super-low interest rate environment and this week’s news that inflation is now at 2.7%, it’s no surprise that intelligent investors are looking to secure a higher income through a few sensible investments. Whether in retirement or to manage everyday expenses, income is what many investors need to support their lifestyles.

Sometimes you may be advised to switch to more growth oriented or risk-off investments. But why switch from something that meets your needs to something that doesn’t?  That’s a recipe for worse returns, higher anxiety, or both.

What’s more is that there are plenty of top stocks on the ASX that offer yields to thrash term deposits, beat inflation, and potentially deliver steady capital gains. Here are some of the best.

Woodside Petroleum Limited (ASX: WPL) pays a fully franked dividend of 5.6% based on today’s prices and represents an oil and gas sector that is fast becoming a yield play. Moreover, it’s currently trading at $38.16 a massive 31% less than Morningstar’s fair value estimate of $50 per share. Woodside is one of the best oil plays on the ASX and investors bullish on the black gold would do well to snap up this business for income and big potential gains. Heavily traded, the stock has become something of a range trader’s playground over the last six months, moving unerringly between $37-$39, any opportunity on the low side of that range looks appealing.

Sydney Airport Holdings Ltd (ASX: SYD) is a virtual-monopoly business with all the cards stacked in its favour. Next-generation airplanes like the Dreamliner alongside increasing international visitors from countries like China where international tourism is only just beginning as a concept are two of the obvious growth themes. The airport is also able to introduce cost efficiencies through technology and has almost no competition to pressure margins.

Passenger numbers are expected to grow from 38 million to 74 million by 2033. Group management has provided guidance for a distribution of 23.5 cents per security in 2014, which represents an 8.1% growth rate on the underlying distribution. Selling at $4.10 it offers a yield of 5.73% with solid prospects for capital growth.

Like Sydney airport, ASX Limited (ASX: ASX), has very limited competition and is therefore more than likely to steadily grow into the future. Its defensive revenue streams allow it to offer up a steady 4.8% dividend yield and selling for $36.70 it trades on a reasonable price-earnings ratio of 18 based on analyst consensus forecasts.

Other widely held stocks to consider include Insurance Australia Group Limited (ASX: IAG) which had a stellar FY 2013 and appears to be seeing the benefits of a refocus on its core strengths, this may point to FY 2013 being the start of many better years to come. At current prices IAG is offering up a trailing yield of 6.9%.

Finally, it’s hard to beat Telstra Corporation Ltd (ASX: TLS) as one of the very best fully franked income-paying stocks with a long runway of growth ahead of it. The business has strong tailwinds, competitive advantages, and offers a fully franked 5.6% dividend yield.

Foolish takeaway

It’s important to stick to the fundamentals when it comes to growing your wealth and rising inflation combined with relatively long-term low cash rates are a perfect storm smart investors should be doing everything to avoid.

All of the above stock picks would let them do that, in my opinion Woodside, Telstra, and Sydney Airport also offer up the best prospect of capital gains.

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Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Tom Richardson owns shares in Telstra and Sydney Airport. You can find him on twitter @tommyr345

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