Some of Australia's best dividend stocks have been hit hard in the market's recent sell-off.
With oil and iron ore prices both plummeting, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has fallen around 9% since peaking in September, with no end in sight.
While most investors will no doubt be cringing at how far their portfolios have fallen or how many thousands of dollars have been wiped from their wealth, there is one clear group of winners from the market's recent woes.
That group is known as value investors.
Indeed, this group is no different to any other investor. They still bleed and they certainly feel the pain just as much as anyone else in the market.
But there is one key difference…
Value investors embrace the market's volatility
That's because some of the biggest gains can be made by buying high-quality stocks trading at discounted prices, and then holding onto them over the ultra-long term, particularly when those stocks pay attractive dividends too.
I was certainly active this morning as the ASX plumbed fresh lows. I bought two stocks – one which I already owned – which I've been watching for quite some time, and managed to pick them both up 5% cheaper than their closing price on Friday. While the underlying businesses remain as strong as ever before, the pair have dropped 14% and 28% in the last three months, so I expect to reap the benefits in the long run.
Unfortunately, due to The Motley Fool's strict trading guidelines, I can't name either stock for at least two trading days after purchasing, but I can tell you there are plenty of others which I am also looking at closely.
The Bull Case for dividends
Most of the businesses I'm looking at right now pay compelling dividends.
That's because I now expect we'll see the Reserve Bank (RBA) drop interest rates even further in the new year – possibly as low as 2%.
Should that scenario play out (and analysts are increasingly expecting that it will), high-yield dividend stocks will become even more popular amongst investors than they are right now.
And I'm not talking about any of the big four banks or Telstra Corporation Ltd (ASX: TLS) – all of which I consider to be overpriced.
Instead, I'm talking about some of the underappreciated stocks on the ASX that have, until now, largely been ignored by investors in their hunt for solid dividends.
One company that has my attention right now is RCG Corporation Limited (ASX: RCG), the owner of The Athlete's Foot shoe store chain. Perhaps because of its small size, the company has gone undetected by most in the marketplace, despite its incredible 7.3% fully franked dividend yield. That's a whopping 10.4% yield when grossed up for franking credits!
Insurance Australia Group Ltd (ASX: IAG) and Coca-Cola Amatil Ltd (ASX: CCL) are also on my radar. At $6.24, Insurance Australia Group offers a 6.1% yield, fully franked, while Australia's largest beverage manufacturer is tipped to pay investors 41 cents per share in dividends (partially franked), putting it on a yield of 4.6%.
Aside from their incredible yields, the attractive thing about each of these three companies is their potential to also deliver fantastic capital gains in the years ahead, giving investors a great chance to smash the market's returns.
One more company that is posing as an excellent buy right now has recently been selected by The Motley Fool's top investment advisor as his BEST dividend stock pick for 2015.
