My top 10 income stock picks for 2015

Look no further than Insurance Australia Group Limited (ASX:IAG) for income in 2015.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Scores of investors have been caught out over the last year chasing high-yielding stocks that, in the end, were too good to be true. Examples include companies like Codan Limited (ASX: CDA) and a host of mining services companies that have seen massive share price falls, boosting their trailing dividend yield and luring in those looking for big returns.

#1 Rule to Income Investing

If you're going to invest a large portion of your portfolio in income-producing stocks, you must consider the sustainability of the income. I have chosen the following 10 stocks based on 1) the sustainability of earnings and thus dividend, and 2) their yield. The reason for this is that there's no point getting a yield of 7% this year if it will drop to 2% next year!

10 Top Income Stocks

Large Caps

Company 2015 Yield (Est) 2016 Yield (Est)
Telstra Corporation Ltd (ASX: TLS) 5.4% 5.6%
Insurance Australia Group Limited (ASX: IAG) 5.4% 5.6%
Wesfarmers Ltd (ASX: WES) 5.3% 5.4%

Mid Caps

Company 2015 Yield (Est) 2016 Yield (Est)
IOOF Holdings Ltd (ASX: IFL) 6.1% 6.8%
Henderson Group plc (ASX: HGG) 4.4% 4.9%
Breville Group Ltd (ASX: BRG) 4.7% 5.3%
JB Hi-Fi Limited (ASX: JBH) 5.3% 5.4%

Small Caps

Company 2015 Yield (Est) 2016 Yield (Est)
Hills Ltd (ASX: HIL) 7.4% 8.3%
Mortgage Choice Limited (ASX: MOC) 6.8% 7.5%
Nick Scali Limited (ASX: NCK) 5.2% 5.7%

Foolish investors will note that the large caps have been great dividend stocks for a long time, while the mid and small caps have a shorter history of reliable payouts. Over time these companies could turn into the new income investor favourites, certainly there could be massive yields on offer in the years ahead.

Risks

The biggest risk to the companies above is a prolonged period of sub-par economic growth in Australia. This will impact retail sales, mortgage growth, income growth and restrain discretionary spending.

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »