The cash rate has yet again been set at historically low levels with many predicting it to stay like this for the time being. Good news for home buyers, but extremely bad news for term deposit holders. Big banks are offering interest rates as low as 3.5% on term deposits, certainly not enough to drive any wealth, especially when inflation sits at around 3.0%.
Here are three stocks that provide yields in excess of 4%, this may not be much more than what the banks are offering, but when you add in their growth potential, they are much better bets than simply hoarding cash.
1. Insurance Australia
Insurance giant Insurance Australia Group Limited (ASX: IAG) operates popular brands such as NRMA and SGIO, insurers we’ve all heard of. What caught my attention is its massive 5.8% fully franked dividend yield and for a blue-chip with a market capitalisation over $14 billion, it’s certainly one of the best yields out there.
A company’s capacity to sustain such a high dividend yield is contingent on its ability to drive future earnings growth and IAG has achieved just that. Its recent $1.845 billion acquisition of Wesfarmers’ underlying insurance wing, which has passed the final regulatory hurdles, is set to increase its Australian intermediated market share to a staggering 24%, allowing it to capture more and more customers in the Australian market.
Despite the recent gains, IAG still trades on a cheap price-to-earnings ratio of 11 and is expected to report modest growth in its financial results next week. I have high hopes for the insurer and I think you should too.
2. Village Roadshow
Entertainment and media company Village Roadshow Ltd (ASX: VRL) is the name behind popular entertainment venues such as the Wet’n’Wild theme park and film productions such as Happy Feet 1 and 2.
Although these popular names may be enough to sustain its juicy 4.6% fully franked dividend yield, Village Roadshow has much to look forward to. While the bulk of its assets are located in Australia and the U.S., Village Roadshow has been expanding into the lucrative Asian market, home to millions of tourists every year. I think this strategic expansion will provide a catalyst for future earnings and help it boost dividends even further.
While it may trade on a relatively high price-to-earnings ratio of 18.63, its future growth prospects provide Village Roadshow with much more room for share price growth. If you’re looking to compound your portfolio higher, Village Roadshow is a reasonably strong bet for your money.
3. Collins Foods
Moving over to a much smaller company, Collins Foods Ltd (ASX: CKF) is a quality food retailer operating some big brands. It owns and operates approximately 125 KFC and 27 Sizzler restaurants in Australia, in addition to 58 Sizzler restaurants around Asia. These popular brands have allowed Collins Foods to deliver a tasty 4.8% dividend, fully franked of course.
Collins Foods has tried to expand the number of KFC stores to counteract weaker growth form the Sizzler stores, and its acquisition of 44 KFC restaurants late last year did just that.
Collins Foods trades on a reasonable price-to-earnings ratio of 12.28 and its recent 9.3% increase in net profit after tax has provided investors with much hope for future gains. I may not be buying right now, but I’ll definitely be keeping a close eye on Collins Foods for further updates.