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National Australia Bank Ltd, Medibank Private Ltd and Rio Tinto Limited: Should you buy?

With interest rates tipped to remain low throughout 2015, blue-chip dividend stocks are likely to remain the focus for many Australian investors.

Indeed with term deposits and fixed income investments offering taxable returns of 3% or 4%, the tax effective fully franked dividend yields in excess of 5% on offer in the share market look very appealing.

The very best dividends are those which are not only sustainable, but growing.

And three companies which are being tipped by analysts to grow their payout in coming years are National Australia Bank Ltd (ASX: NAB), Medibank Private Ltd (ASX: MPL) and Rio Tinto Limited (ASX: RIO).

However investors considering buying shares in any of these companies must first understand the risks because a consistent share price fall could easily whip out the perceived benefit of a forecast dividend payment.

Here’s what you need to know…

NAB – our largest bank by assets – is currently forecast to pay a 6.5% fully franked dividend in 2015. After announcing around $1.5 billion of write-offs earlier in the year, NAB’s new CEO Andrew Thorburn has made it his goal to finally rid the bank of its troubled foreign assets to focus solely on Australia and New Zealand. However it should be noted many management teams have come and gone trying to do the same, while its share price has significantly lagged its peers. So whilst the shares may look cheap (it trades on a forward P/E ratio of just 11), the comparatively low price may be justified.

Medibank Private was the hottest IPO in 2014 and no doubt retail investors who purchased shares at $2.00 in November would be happy with its 14.5% gains thus far. However at today’s price of $2.29, Medibank shares change hands at almost 24 times next year’s earnings. That means, much of its growth is already baked into the market price and will likely make it susceptible to sell offs at the slightest sign of weakness. As a result of a lofty valuation, its 2.1% fully franked dividend yield for 2015 doesn’t appear worthy of an investment today.

Lastly Rio Tinto has committed to increased shareholders returns in the coming year and analysts are forecasting a 4.5% fully franked dividend yield. However Rio is staring down the barrel of low iron ore prices (the commodity has fallen over 50% in 2014) as well as lacklustre coal and uranium prices. Given iron ore accounted for over 90% of FY14’s profits, investors would be wise to keep their distance in 2015.

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Motley Fool Contributor Owen Raszkiewicz owns shares of Medibank Private. You can follow Owen on Twitter @ASXinvest.

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