Believe it or not, investors find it very easy to fall in love with their favourite stocks…
It goes up once and we're happy.
It goes up twice and we wish we'd bought more.
It goes up a third time and, well, it's got to be a sure thing.
But this phenomenon is nothing new.
In his widely acclaimed 1949 book on value investing, aptly named The Intelligent Investor, Benjamin Graham noted: "The speculative public is incorrigible. In financial terms it cannot count beyond 3. It will buy anything, at any price, if there seems to be some "action" in progress."
In the current market, it appears blue-chip dividends stocks are where all the "action" lies.
However between the big banks, two supermarket giants and Telstra Corporation Ltd (ASX: TLS), there's not a bargain to be found.
Indeed at today's price of $5.62, Telstra shares trade over five times book value and 15 times earnings.
Whilst it may be too much to call it an all-out sell, it's definitely not in the buy zone either. In fact, I've said it before, but I'd consider a good price to pay is around $4.00 per share.
4 stocks I'd buy before Telstra
Certainly if you want a stable income stream from your investment it's vital you look past the 'usual suspects' like Telstra and the banks because they're not cheap.
The downside risks are too great to justify an investment for a 5% dividend yield.
However if you are – like me – prepared to invest long term (10 years or more) and are looking to secure a modest income stream and the chance of capital gains, there are a number of high-quality blue-chips trading at decent valuations.
For example embattled beverage bottler and distributor Coca-Cola Amatil Ltd (ASX: CCL) has a lot to offer at today's price, including a 4.5% partially franked dividend yield.
Another company with a strong competitive advantage is Sky Network Television Ltd (ASX: SKT), the owner of New Zealand's premier pay-tv service. It's trading on a forecast dividend yield over 5.5% according to Morningstar.
However if you'd like more growth potential, two cheap small-cap stocks with big dividend yields are Collins Foods Ltd (ASX: CKF) and Money3 Corporation Limited (ASX: MNY). Both offer sound growth potential and forecast fully franked dividends of 5.1% and 3.4%, respectively.
Our #1 stock pick for 2015 – Yours FREE!
Moving into 2015, investors should be positioning themselves for another year of poor returns from term deposits and savings accounts. However don't be fooled into thinking the 'usual suspects' are the best bets for your money because, at today's prices, none of them present as compelling investments.
