There’s been an understandable trend towards large blue-chip stocks such as Telstra Corporation Ltd (ASX: TLS) and the major banks over the past few years in response to the continued loosening of monetary policy by the Reserve Bank of Australia (RBA) which has resulted in record low interest rates.
With the cash rate currently at 2.5% and few signs that the RBA will be in any sort of rush to raise the rate, its highly likely that investors will continue to favour these high-yielding stocks for some time to come.
While many investors are more comfortable holding large, blue-chip companies, for investors looking for even higher yield options – potentially with a greater opportunity for capital gains as well, but also with a higher level of risk – there are a number of opportunities amongst much smaller, lesser known stocks.
Here are three worth considering.
McPherson’s Ltd (ASX: MCP) has a market capitalisation of just $108 million but owns a wide range of well-known household consumer brands including Wiltshire and Multix. Morningstar Research data suggests the company will pay dividends totalling 10.1 cents per share (cps) in FY 2015. With the share price currently at $1.14, this implies a fully franked yield of 8.8%.
RCG Corporation Limited (ASX: RCG) is best known as the retailer behind The Athlete’s Foot brand of stores. With a market capitalisation of $168 million it is also relatively “tiny”, however its forecast dividend of 4.5 cps which equates to a fully franked yield of 7.1% is anything but tiny!
Data #3 Limited (ASX: DTL) has a market capitalisation of $104 million and operates a broad based IT services business. Data #3 is forecast to pay 6 cps in dividends in FY 2015, which represents a hefty yield of 8.9%.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.