One of the best things about owning a stock that pays a reliable dividend is that even when the market is falling, the company you own shares in will keep sending you cash to invest or spend.
Having already explained why iron ore stocks are not good dividend stocks, I thought it would be reasonable to provide yield-seeking readers with a few options I think are worth considering.
First on the list has to be owner of the Althlete’s Foot franchise in Australia, RCG Corporation Limited (ASX: RCG). Shares currently trade on a trailing yield of about 7.6% with reasonable prospects of dividend growth over time. In my view Mr Market is overreacting to lower growth than he had expected, and failing to acknowledge that RCG Corporation is an usually defensive retailer. That’s because many people resist buying shoes online, for the quite obvious reason that trying on shoes is extremely desirable.
Furthermore, the company profits from people deciding to exercise, a clear positive for society. While retail is not my favourite sector, at current prices, RCG Corporation is certainly my preferred retailer.
Second spot goes to DWS Limited (ASX: DWS) one of the collection of IT consulting businesses that are seeing revenues steadily decline. Instead of spending spare cash on acquisitions, as competitors have, DWS has maintained a dividend payout ratio of 90%, and has announced it intends to buy back shares on market. Personally, I have not purchased shares, but I think that even if the dividend is reduced, a purchase today is likely to yield at least 7% in FY 2015.
As the company’s billable headcount stabilises (along with demand for services), increased efficiency should open investors’ eyes to the value in the business. However, it’s not known when the market for IT consulting services will stabilise, as it has been in decline for some time.
Finally, Prime Media Group Limited (ASX: PRT) also deserves a mention because at current prices, it trades on a trailing yield of 7.3% and a forecast yield of almost 8%. The company owns television broadcasting licenses in parts of regional Australia and programming is supplied through an affiliation agreement with the Seven Network which is owned by Seven West Media Ltd (ASX: SWM).
Obviously, television is in decline, because people increasingly access content over the internet. However, this trend is sometimes overstated, and it is not so clear in regional Australia, where internet speeds are frustratingly slow. With current broadband policy a shambles, television is unlikely to see declines as severe as I had anticipated a few years ago. I wouldn’t buy Prime Media at current prices, but I think it will continue to yield at least 7% for years to come.
Of these three stocks, I prefer RCG Corporation.
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