With Australian interest rates already low and the dollar falling quickly, it's little wonder why investors are looking to the stock market for relief.
Indeed, big name companies are offering superb dividend yields and the chance of generous capital gains.
Whilst term deposits are paying around 3% per year, the market – benchmarked by the S&P/ASX 200 (INDEX^: AXJO) (ASX:XJO) – has already climbed 3.2% in 2014 plus dividends.
Three well-known companies which income investors will likely be considering adding to their long-term portfolios are National Australia Bank Ltd. (ASX: NAB), Rio Tinto Limited (ASX: RIO) and Cash Converters International Ltd (ASX: CCV).
For example, whilst a $10,000 term-deposit with NAB offers an interest rate of just 3.2%, the bank's shares trade on a grossed-up dividend yield of 8.5%.
And despite the price of iron ore falling over 40% in 2014, mining giant Rio Tinto is committed to returning excess cash to shareholders, in the form of dividends. With shares down 10% this year, they currently yield 4.9% grossed-up.
Even the $470 million second-hand goods dealer and payday loans provider, Cash Converters, is forecast to pay a dividend in excess of 5.6% (grossed-up) in the coming 12 months.
Buy, Hold, or Sell?
Of course, dividends are only ever part of the investment thesis and whenever an investor buys a stock, they must have an understanding of the company's strategy, financials and valuation.
Indeed, at today's prices I think none of the big banks (including NAB) are a worthwhile investment, despite their big dividend yields.
Further, Rio Tinto is facing a number of headwinds within its iron ore division (the commodity accounts for over 90% of profit) and is probably best left on your watch list.
But I am bullish on Cash Converters and believe investors could do a lot worse than add the stock to their long-term portfolios for both dividend yield and growth potential.
