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Should you buy these 4 huge dividend stocks?

Telstra Corporation Ltd (ASX: TLS), National Australia Bank Ltd (ASX: NAB), Coca-Cola Amatil Ltd (ASX: CCL) and Woodside Petroleum Limited (ASX: WPL) are some of Australian investors’ favourite stocks for dividends. And it’s easy to see why…

Each company pays a juicy franked dividend which crushes low interest rates on offer in term deposits and savings accounts.

In fact, whilst some term deposits are offering interest rates of just 2.5% PER YEAR, solid blue-chip stocks are paying grossed-up dividend yields over 9%!

But there’s a catch…

Not all dividend stocks are created equal.

Certainly I believe each of the above four companies will pay dividends in the next year, which will exceed the return from term deposits. However if you overpay for a stock… well, we’ve all heard what happens next…

With that in mind, here’s what I think you can expect from the above four stocks and whether, or not, they’re priced to buy.

NAB (Grossed-up forecast dividend yield: 8.2%)

In investing, like most things, bigger is not always better and NAB proves it. Despite being our largest bank by total assets, NAB’s share price has grown just 20.84% in the past 15 years. Of course, dividends have been paid along the way but juxtaposed with Commonwealth Bank of Australia’s (ASX: CBA) 200% return plus dividends, you can see why shareholders would be unimpressed by the return.

Looking forward, NAB continues to be plagued by its UK exposure and whilst new CEO Andrew Thorburn and his team seem to be making strides to improve profitability, I wouldn’t be prepared to bet on it at this time.

Telstra (Grossed-up forecast dividend yield: 7.8%)

With a wide economic moat (competitive advantage) and big dividend yield, Telstra appears to be the perfect investment for long-term investors. In addition to a number of impressive defensive characteristics and returns on equity north of 30%, it’s in poll position to benefit from our ever increasing use of the internet and machine-to-machine communication (M2M).

However when it comes to valuation, Telstra falls short. Whilst I’m not prepared to say it’s a ‘sell’, it’s definitely not in a price range where I’d be able to call it a ‘buy’ either. $4.70 is a price where I would start to get interested.

Coca-Cola Amatil (Grossed-up forecast dividend yield: 6.3% – assuming 75% franking)

Ask a half-dozen investors and you’ll get a dozen different answers on this one. Australian beverage bottler and distributor Coca-Cola Amatil has proven to be a contentious topic of late. With its surprise profit warning earlier in the year, it’s easy to why.

However, those who believe we’ll continue drinking more soft drinks (and alcohol!) in the future are likely seeing long-term value in the stock at today’s prices. I’m cautiously optimistic and have call warrants (my disclosure is below), but as I’ve previously opined, it won’t be smooth sailing. Especially in Indonesia where the company is experiencing intense competition and generates lacklustre EBIT margins (around 1.2%).

Woodside Petroleum (Grossed-up forecast dividend yield: 9.5%)

Woodside recently released its third quarter operations report which showed production up 7.2% and sales revenue up 16.7%, compared to the prior corresponding period in 2013. After dropping out of the running for the giant Leviathan gas field off the coast of Israel analysts became concerned about Woodside’s growth prospects moving forward.

However, as Motley Fool contributor Sean O’Neill says here, the group’s exploration activities in Cameroon and Gabon are excellent. In addition, the well managed Woodside, is also pursuing other organic growth opportunities in Myanmar and the Porcupine basin, off the coast of Ireland.

Buy, Hold or Sell? 

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Motley Fool Contributor Owen Raszkiewicz is long Jun 2016 $5.41 warrants in Coca-Cola Amatil Ltd.  

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