5 red hot stocks with smashing dividend yields

Why only go for yield when you could also have incredible capital gains.

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If you’re looking for a steady but solid income stream, as well as the potential for excellent long-term capital gains, I have just the five stocks for you. Each offers a minimum yield of 3.8% while they all have the potential to deliver stellar returns over the coming years.

Telstra Corporation Ltd (ASX: TLS): When hunting for solid dividends, you can’t look past the telecommunications giant. While it currently offers a legendary 5.4% fully franked dividend, the telco is looking to expand its presence in Asian markets which could significantly boost earnings, while a string of strategic divestments are also freeing up enormous piles of cash. More cash in hand could certainly spell greater dividends in the near future.

Pacific Brands Limited (ASX: PBG): Simply looking at Pacific Brands’ share price chart over the last seven years could suggest this is a stock to avoid. In that time, it has dropped nearly 86% in the face of fierce competition and declining sales. However, the company appears to be turning things around, having improved its costs and sales in more recent times, helped by its stable of strong brands like Bonds, Hush Puppies and Hard Yakka. While there is certainly upside potential in buying the shares today, investors can also take advantage of its enormous 8% fully franked dividend!

M2 Group Ltd (ASX: MTU): Another telco that could be dialled into your portfolio is M2 Group, the owner of companies like Dodo and Primus. While the company has grown rapidly through strategic acquisitions, it will now turn its attention towards paying down debt and growing organically. With a market cap of $1.06 billion, there is plenty of room for long-term expansion. In the meantime, investors can enjoy the generous 3.8% fully franked yield.

Coca-Cola Amatil Ltd (ASX: CCL): Despite its poor performance over the last 12 months, the beverage distributing giant remains one of my favourite stock picks from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today. The stock is sitting near a six-year low and offers a 5.3% partially franked (75%) dividend yield. As the company improves costs and continues to introduce new products to the market, I think the capital gains over the long term will also be delicious.

Insurance Australia Group Limited (ASX: IAG): If you want to take advantage of a high-yielding stock while interest rates are low, IAG, as the company often refers to itself as, is your answer. The insurance giant offers a 6.1% fully franked dividend yield and is set to benefit when interest rates rise as it can generate greater returns on its float.

An even better bet for your money…

Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.

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