On Tuesday, the RBA left interest rates on hold.
That means investors thinking of renewing their term deposits will either have to accept lacklustre returns on their investment or look elsewhere.
One viable alternative for those seeking either income or purchasing power from their savings (remember inflation is 3%), are blue chip dividend stocks.
Not only do many Australian companies pay dividends in excess of 5% per annum, with franking credits, but some investors also believe stocks provide a defence against rising inflation.
However before making the switch, it's important to remember blue-chip stocks included in the S&P/ASX 200 (INDEXASX: XJO) are not immune from market setbacks or corrections.
So paying the right price for even the biggest and best dividend stocks is essential. That's why I believe the following five dividend stocks deserve a spot on investors' watchlists, but not in their portfolios.
- Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) are two exceptional businesses which have rewarded shareholders with dividends and capital gains. However with share prices riding at all-time highs, neither are a compelling buy today.
- Macquarie Group Ltd (ASX: MQG) is another bank which has been kicking goals for shareholders in recent times, with shares up over 100% since 2012. Being an investment bank, Macquarie is highly leveraged to rising investor confidence and the performance of equity markets. Buy its stock when worldwide markets crash, not now.
- Fortescue Metals Group Limited (ASX: FMG) is an iron ore miner which has been in-and-out of the news lately. Iron ore has, so far, fallen over 35% in 2014 and hit a five-year low of $85.70 overnight. That level is approaching FMG's breakeven price which is estimated to be between $US70 and $US80 per tonne. An investment in Fortescue is a leveraged play on iron ore prices.
- Woolworths Limited (ASX: WOW) is a great Australian business which pays fully franked dividends, it is currently forecast to yield 4%. However given Woolies' sheer size, market position, and the emergence of new competitors (think Costco and Aldi etc.), its current share price appears excessive. I'm waiting for a lower price and think you should too.
Our #1 dividend stock idea – Yours FREE!
