Investors are facing a serious problem.
Interest rates are stuck at just 2.5% and could be headed even lower, possibly as low as 2.25%.
As Bruce Jackson, General Manager of The Motley Fool Australia highlighted, "Yield-hungry investors have pushed valuations up to levels that don't leave a lot of room for error… meaning there's now a very real chance of capital loss."
So what are investors to do?
Settle for dismal term deposit returns? This method is actually making thousands of investors lose money as inflation rates creep higher and the tax man eats at their profits.
Or how about buy gold – that shiny metal that lies in a box and sits still and looks good? Sure, it could climb in value, but I'd much prefer to own a part of a growing business that could compound in value over the years.
And that's exactly what the smart investors are doing.
They're not keeping all their cash on the sidelines, or buying up stocks in the usual suspects. Instead, you can bet your bottom dollar they're topping up on other overlooked stocks – ones that offer significant yields as well as excellent growth potential.
Well I've uncovered four stocks that would make for ideal investments right now. Each of them are still trading at reasonable prices, boast strong growth potential and offer a solid dividend yield.
Without further ado, here are the four companies I think you should take a look at now.
- M2 Group Ltd (ASX: MTU) is a great alternative to Telstra for exposure to Australia's booming telecommunications industry as well as a juicy dividend yield. The company has grown strongly thanks to a number of significant acquisitions, including that of Dodo and Primus, but will now turn its attention towards growing organically. Based on Morningstar's forecasts for FY15, the stock offers a delicious grossed up yield of 6.9%.
- Webjet Limited (ASX: WEB) has been on the wrong side of investors over the last 12 months, but all signs are suggesting the future should bode well for those who buy today. Various aspects of travel, including flights, hotel and car hire bookings, are increasingly being made online, and Webjet is in a prime position to benefit. The stock is trading on a projected P/E multiple of 14.5, while FY15 forecasts put it on a fully franked yield of 5.5%. Grossed up, that's a 7.8% yield.
- Insurance Australia Group Limited (ASX: IAG) is a blue-chip stock still offering a very healthy yield and decent growth opportunities. Armed with brands such as CGU and SGIO, Insurance Australia Group also recently acquired the underwriting business of Wesfarmers Ltd (ASX: WES), which should provide growth moving forward. FY15 forecasts put it on a remarkable grossed up yield of 8.9%.
- Nick Scali Limited (ASX: NCK) is a small-cap furniture retailer that has consistently grown revenues and net profit over the last decade, seemingly laying unaffected by the growing pressures of the online sector. As house sales continue to increase, so should its sales making Nick Scali a decent buy today. It is expected to distribute a fully franked 14 cents per share in FY15, giving it a forecast grossed up yield of 7.1%.
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It is vital that investors remember that a solid dividend isn't everything. They also need to consider the price they're paying for the shares and the company's ability to continue growing well into the future. After all, there is no point in buying a stock for its 5% dividend yield if its share price is likely to fall…
