Is this blue-chip stock’s 7.8% yield too good to ignore?

In a low cash rate environment many investors will be focused on securing a high income from stocks that have strong track records with the relative reliability of blue-chip status.

Given Australia’s unemployment rate just hit a 12-year high, smart investors will probably conclude that the low cash rate environment is going to be with us for a long while yet. So why not consider a blue-chip business that offers a 7.8% yield when grossed-up for franking credits?

Well, Westpac Banking Corp (ASX: WBC) offers just such a payday selling for $33.72 when based on Morningstar’s forecasts for a total dividend payout of $1.85 in financial year 2014. That would place Westpac on an ordinary yield of 5.5% and a grossed-up yield of 7.8% for this financial year.

Now that’s the kind of return to smash the paltry offerings available on term deposits and other cash equivalent savings accounts. Of course the key rider is to be comfortable that the value of your capital will not erode so as to negate the income gains. Therefore if you are not comfortable that the Australian residential property market will continue to show modest gains over time, Westpac or any of the other big banks like the Commonwealth Bank of Australia (ASX: CBA) or Australia and New Zealand Banking Group (ASX: ANZ) are not for you.

However, if you’re comfortable that interest rates are now set to be lower for longer on the back of rising unemployment and low wage growth inflation then you may find fully franked dividend stocks like Westpac continue to receive support from income seekers for a long time yet. In my opinion investors could do far worse than look to a rock solid business like Westpac if finding fully franked income is one of their main investment priorities.

If you're worried Westpac's expensive on an historical basis, then why not consider a growth stock we know that also offers a 7% grossed-up yield and looks on a BETTER valuation. It'll be reporting its results soon so if you're interested it may be worth reading up on it today. Just click here to download your FREE copy of "The Motley Fool's Top Dividend Stock" today.

Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

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