Some investors, particularly those approaching retirement age are almost myopic in their focus on dividends. In fact the clamour for reliable and high dividend yields has led to the phrase 'chase for yield' becoming a recent addition to the investment vernacular!
Yield should never be considered in isolation to value
Many yield-seeking investors focus on blue-chip stocks given that in theory they should have defensive characteristics and stable earnings streams, but even blue chips can succumb to pressures during tough economic times. For example even the geographically and customer diversified Brambles Limited (ASX: BXB) was forced to cut its dividend during the GFC.
Rock solid
Two blue-chip firms which displayed their defensive qualities during the GFC were energy companies AGL Energy Ltd (ASX: AGK) and Origin Energy Ltd (ASX: ORG). Both businesses managed to either maintain or grow their dividends through the turmoil.
Historically that's a good thing and can give investors some comfort regarding AGL and Origin's ability to maintain their pay-out levels even during the worst bear markets.
Which stock makes a more appealing income play at present though?
According to Morningstar's consensus data, AGL is forecast to pay a total dividend of 65.9 cents per share (cps) in FY 2015, putting the stock on a fully franked yield of 4.7%. In comparison, Origin is forecast to pay dividends totalling 50 cps, implying an unfranked yield of 3.2%.
AGL shareholders sitting pretty!
With the benefits of full franking, AGL's yield looks more appealing despite expectations that in future years Origin's dividend will rise significantly as its APLNG Project comes online. Should Origin begin franking its distributions in the near future then the tables could be turned on AGL.
