If you’re looking for regular tax effective income from your investment coupled with capital gains potential, look no further than the Australian stock exchange. Three big companies which have proven to be great dividend stocks in the past year are Woodside Petroleum Limited (ASX: WPL), Telstra Corporation Ltd (ASX: TLS) and Macquarie Group Ltd (ASX: MQG).
In the past 12 months each have paid out big distributions to shareholders yet have outperformed the S&P/ASX 200 (ASX: XJO) (^AXJO) considerably. They are up 17%, 15% and 37%, respectively, not including dividends. But can the good times continue?
Here’s what investors can expect from these big names in coming years.
Woodside is Australia’s premier independent oil and gas company with a majority of its interests off the coast of Western Australia. After recently dropping out of the running for a stake in the giant Leviathan gas field off the coast of Israel, Woodside’s management will now be focusing on progressing the Browse FLNG project.
With the company likely to save millions in capex in the short-term, management might look to up its payout to shareholders. However, for long-term investors this is probably undesirable. Although earnings could be expected to jump in FY14 (following a poor result in FY13), I think it trades around fair value.
Telstra has been, and continues to be, a star performer amongst the ASX’s biggest stocks. With the recent divestments of both Sensis (it still holds a small stake in the company) and its Hong Kong mobiles business, CSL, management will be sitting on a huge cash pile. It could look to return funds to shareholders, pay down debt or fund growth in Asia. At current prices, Telstra represents a good long-term buy and hold.
Our biggest investment bank recently proved it’s got what it takes to be considered one of Australia’s best income and growth stocks. In FY14 it notched up 49% profit growth and $8.1 billion in operating income, up 22% on the prior corresponding period.
Macquarie’s funds management and Corporate and Asset finance businesses continue to show promise whilst each of the bank’s smaller divisions are also likely to grow earnings in coming years. Although most fund managers and investment banks do really well when global equity markets perform, I believe Macquarie is a great long-term buy and hold because of its largely conservative balance sheet and very high amounts of tier 1 capital.
An even better buy
In order of preference I’d rank Macquarie as the best buy at current prices, followed by Telstra then Woodside. Although a compelling investment case could be made for any of these companies, investors shouldn’t limit themselves to just these three. For example there is one, largely unknown, company I’m strongly considering buying today.