Australian investors love dividends. Particularly when they’re fully franked. The tax benefits and a bi-annual income stream make investing a joy.
However rising share prices make it difficult to find a bargain stock with big dividend payouts. So the onus is on investors to find stocks which are most likely to increase earnings and payouts in the future.
Excluding mining services the resources sector has, in recent years, been at the brunt of negative investor sentiment. Big miners chewed up cash and spat out write-downs in every annual report. So much so investors had enough.
But it may have been the wrong time to walk away from the table. Shareholders could now be walking away from reformed, leaner miners with greater amounts of equity and rising production.
Rio Tinto Limited (ASX: RIO) is the prime example. After years of write-downs and poor shareholder returns, the company is emerging as a more efficient and higher producing miner. In my opinion, Rio appears to have turned a corner and is likely about to begin returning more funds to shareholders. A current $1.92 full-year dividend means it trades on a yield of 3.1% fully franked.
Perhaps the biggest dividend payer is Woodside Petroleum Limited (ASX: WPL). Shareholders can expect a huge 5.3% fully franked payout. Based on Morningstar’s analysts’ forecasts, dividends will increase throughout 2014 before contracting in 2015 and 2016.
Although it may be a small dividend payout compared to its peers, Santos Limited’s (ASX: STO) dividend will increase as greater production comes online in the next two years. The completion of both the GLNG and PNG LNG projects will remain a long lasting driver of earnings and easy money for the blue-chip gas producer. Based on a forecast payout of 33.5 cents per share in 2014, it currently yields 2.5%. However the payout is likely to reach as high as 47 cents by 2016.
Resources stocks will soon be on the receiving end of shareholders attention but savvy investors looking for long-term bargains should be scouring through the sector now. Of these companies, Santos looks most likely to outperform its peers as it transforms its production profile.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned.