With interest rates being so low, it's understandable that investors are searching for a better alternative to cash.
After all, when inflation is almost as high as your return, it should send alarm bells ringing in the ears of most investors.
With that in mind, here are three stocks that have the potential to make a real difference to your income return.
Insurance Australia Group Ltd
When it comes to a track record of raising dividends, Insurance Australia Group Ltd (ASX: IAG) scores very highly. That's because it has increased the amount it pays out to shareholders at an annualised rate of around 31% over the last five years.
Clearly, such a vast rate of growth is a key reason why shares in the insurer now yield a hugely appealing 6% (fully franked). Furthermore, that's despite its share price rising by 9% since the turn of the year.
Looking ahead, IAG seems to have ample headroom when making its dividend payments, with it having a dividend coverage ratio of 1.4. In addition, with dividends forecast to grow by around 7% in 2015, IAG could be an income stock worth holding.
Caltex Australia Limited
It may seem rather surprising to be talking about Caltex Australia Limited (ASX: CTX) in terms of its income potential. After all, it only yields 1.2% (fully franked) at the present time.
However, dividends are forecast to rise at a whopping annualised rate of 58% over the next two years and this means that in 2015 Caltex is set to be yielding 2.7% at its current share price.
Still, that's only 0.2% higher than the current interest rate but, looking further ahead, Caltex could continue to increase dividends at a rapid rate. That's because it is expected to have a dividend payout ratio of just 48% next year, which indicates that it could pay out a higher proportion of profit as a dividend without underinvesting in the business.
So, with this potential over the medium term factored in, Caltex could become a relatively attractive income stock in 2015 and beyond.
Telstra Corporation Ltd
Although Telstra Corporation Ltd's (ASX: TLS) position as the dominant player in the Aussie mobile market is coming under pressure from the likes of Vodafone Hutchison and SingTel-Optus, it still offers superb income potential. And, even though its share price has risen by 8% in 2014, it still yields a very appealing 5.2% (fully franked).
Furthermore, the reduction in its share of the Aussie mobile market could be overshadowed by Telstra's global potential. For example, it is focusing on higher growth regions across Asia, which would clearly be good news for shareholder payouts in the medium to long term.
With shares in Telstra trading on a P/E ratio of 15.8, they do appear to be fully valued (especially when the ASX has a P/E ratio of 15.4). However, when their income potential and future growth prospects are factored in, Telstra still looks to be a stock worth holding for 2015 and beyond.
