While there are undoubtedly opportunities to uncover if you spend your time searching through the hundreds of small-cap stocks with maintainable dividends that are trading on yields higher than those available amongst their larger peers, the advantages of limiting your search to larger capitalised income stocks are twofold.
Firstly, often – although certainly not always – with size can come stability. In other words, lower volatility in earnings should in theory mean less volatility in dividend payments.
Secondly, there is greater depth of analyst coverage amongst larger stocks which makes it easier to quickly estimate expected future earnings and dividends.
Shareholders in Wotif.com Holdings Limited (ASX: WTF) have seen its share price halved in the past year as concerns mount over the competitive threats from foreign online travel and accommodation comparison sites entering the Australian market. However, even after accounting for these concerns, analyst consensus estimates put financial year (FY) 2015 dividends at 20.5 cents per share (cps). With the shares currently trading at $2.60, this implies a hefty forecast fully franked dividend yield of 7.9%.
NRW Holdings Limited (ASX: NWH) is exposed to plenty of headwinds given it provides services to the resource and infrastructure sectors. Despite these headwinds, NRW is still forecast to pay dividends in FY 2015 of 7.8 cps which at current prices equates to a fully franked yield of 7%.
BC Iron Limited (ASX: BCI) is currently trading on a price-to-earnings ratio of less than six times forecast FY 2015 earnings per share. With a forecast dividend of 32 cps, the implied yield is 6.6% fully franked. While there are reasons to have legitimate concerns over the outlook for the iron ore price, it is also reasonable to suggest that this is already reflected in analyst consensus numbers.
GUD Holdings Limited (ASX: GUD) operates in a number of different market segments but unfortunately they have each faced weak economic environments. Analysts appear to see the earnings trough as occurring in the current financial year with an uptick in earnings expected to take hold in FY 2015. A dividend of 40.9 cps is forecast which places the stock on a fully franked dividend yield of 7.7%.
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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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