There's no denying just how much Australians love their dividends.
And why wouldn't they? After all, they're an easy source of cash, they often come with tax benefits attached and they sure as hell beat the returns from 'risk free' assets like term deposits or government bonds.
But investors have gotten so caught up in their love affair that many are now forgetting about the importance of value. Too many are buying stocks simply because they offer attractive yields, ignoring the fact that they are overpaying for the privilege of holding them.
But that's not the case with all dividend stocks. In fact, it seems that some incredible opportunities may have been overlooked.
One they seem to have missed is one of Australia's most popular insurance companies, Insurance Australia Group Ltd (ASX: IAG). How it was overlooked I'll never know, considering it offers an incredible 9.1% grossed up dividend yield, which is even better than the yields offered by Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd. (ASX: NAB). In addition, IAG trades on a P/E ratio of just 11, which I believe is quite underdone considering its ability to grow earnings considerably in the coming years.
Considering its comparable size and the fact it operates in the retail industry, it is perhaps a little more understandable why RCG Corporation Limited (ASX: RCG) has been ignored. However, the owner of The Athlete's Foot shoe store chain has shown impressive growth recently and relies on its superior customer service levels to maintain solid margins. In addition, it offers an incredibly generous 7.5% fully franked dividend yield, which equates to a grossed up 10.7% yield.
The third stock I want to draw to your attention hasn't exactly been overlooked by the market, but rather sold off heavily. Coca-Cola Amatil Ltd's (ASX: CCL) performance in recent times has been shocking, to say the least, with shares down more than 40% in the last 18 months. However, while the market is focused on the headwinds affecting the company's earnings in the near-term, I believe the long-term outlook looks bright. Thanks to its strong balance sheet, Coca-Cola Amatil has managed to maintain a solid yield. It is currently expected to distribute 45.5 cents per share in 2015, franked to 75%. Grossed up, that's a yield of 6.6%.
