After a recent set back in prices, dividend-paying stocks are back in the limelight.
And who could ignore the opportunity to buy into a stock with a dividend worth 5% or 6% fully franked, when term deposits at the big four banks – such as National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) – are offering a measly 3.2% for 12 months!
To make matters worse, inflation is 3%. Meaning, after tax, you could be losing purchasing power. Not to mention the opportunity cost associated with missing out on other – more rewarding – investments.
That's not to say you shouldn't have some of your wealth in cash. Indeed, you should.
However, if you've got five to 10 years to invest your money, why wouldn't you take on a little extra risk and buy some quality dividend-paying shares?
Of course, the stock market is volatile. But if you're planning to invest for the long term, volatility is to be welcomed, not feared, because it affords us compelling buying opportunities.
And right now there's a number of small-cap stocks you could consider buying…
For instance, RCG Corporation Limited (ASX: RCG) is the owner of The Athlete's Foot range of stores and distributor of exclusive brands such as Merrell, CAT and Saucony. The $150 million company has paid a bigger dividend every year since 2009 and currently trades on a trailing dividend yield of 7.5% fully franked. That's 10.8% grossed-up!
Another small-cap stock paying a handy fully franked dividend yield is Money3 Corporation Limited (ASX: MNY). It provides fast approval for small short-term loans through a growing branch network and online. It currently yields 3.8% fully franked, or 5.2% grossed-up.
Lastly, Collins Foods Ltd (ASX: CKF) owns and operates KFC, Sizzler and the new Snag Stand stores popping up around the country. The company's stock has fallen 12% in the past month, but it only recently flagged a strong start to 2015 and analysts are predicting profit growth ahead. Shares trade on a trailing dividend yield of 5% fully franked, 7.1% grossed-up.
Seasoned investors believe the current low interest rate environment is here to stay. So don't be late to the party.
If you haven't already, start thinking about how you can make your money work harder for you. But before you go jumping into the stock market head first, take your time and learn what you need to learn. It's probably the best investment you could ever make!
