There are plenty of stocks trading on historically high dividend yields but of course that is just a reflection of the past – it doesn’t necessarily tell you much about the future. In fact, if anything an above average yield is most likely telling you that the future dividend is expected to be cut! In other words, be wary of stocks with excessively high yields.
So, on the one hand a super high yield can be a warning sign for investors that all is not what it seems – the old saying: “If it’s too good to be true, then it probably isn’t true” is worth remembering.
The key for investors wanting to purchase high yielding income stocks is to focus on the forecast dividend yield as this gives a truer picture of what to expect.
Given the inherent difficulties with forecasting earnings growth, income investors are generally best off sticking with companies that have predictable earnings.
Here are three stocks offering high fully franked yields which should be maintainable.
Prime Media Group Limited (ASX: PRT) is forecast (according to Morningstar data) to pay a dividend of 7.4 cents per share (cps) in financial year (FY) 2015. With the share price near a year low at 91 cents, this implies a salivating yield of 8.1%
STW Communications Group Ltd. (ASX: SGN) is also trading near its 52-week low with the share price currently at $1.17. With a forecast dividend payment in 2015 of 8.7 cps, STW is available on a forecast yield of 7.4%.
Automotive Group Holdings Ltd (ASX: AHE) has a forecast dividend of 23.5 cps in FY 2015. With its share price at $3.77 this implies a solid dividend yield of 6.2%.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.