Some investors remain fixated on buying the banks and Telstra Corporation Ltd (ASX: TLS) to provide them with fully franked income. This strategy is OK but it does have its flaws.
Firstly, most analysts would suggest that Telstra looks fully priced and therefore the potential for capital gains appears low. Secondly, many analysts are pointing towards the record run in bank profits and the cyclically low level of bad debt provisioning which suggests that peak earnings and the end of strong profit growth may be near. Indeed, declining earnings and lower valuations could be the next direction for the banking sector.
In contrast, there are a number of stocks which are currently somewhat out-of-favour, their earnings are depressed and their yields super high. The following stocks are all forecast to pay above average yields, but importantly they could also potentially offer capital gains in the future if their earnings improve.
With a view to FY 2015 and using analyst consensus data provided by Morningstar Research here are five stocks which look even more appealing than Telstra.
Insurance Australia Group Limited (ASX: IAG) is forecast to pay a dividend of 36.2 cents per share (cps). With IAG’s share price at $5.77 this implies a yield of 6.3%.
GUD Holdings Limited (ASX: GUD) is forecast to payout 40.3 cps in dividends, equating to a yield of 6.5%.
Monadelphous Group Limited’s (ASX: MND) dividend is forecast to decline to 13.8 cps in FY 2015, so investors would want to have some faith that the engineering contractor is approaching the bottom of the earnings cycle. Based on that forecast however, the stock is trading on a yield of 7.2%.
Skilled Group Ltd. (ASX: SKE) is forecast to pay a dividend of 18.2 cps which equates to a yield of 7.7%.
Myer Holdings Ltd (ASX: MYR) is forecast to return 15.8 cps to shareholders via dividends in FY 2015. At today’s share price of $2.05 this implies a forward yield of 7.7%.