With the New Year also being the half-way point for FY 2015, how is your portfolio standing up? Do you have some gains developing, or have things not gone as planned?
One way to bolster your returns is to build up a base of dividend income. Aussie investors love their high-yield and blue-chip stocks- and for good reason. They keep a steady flow of money coming in and help offset other stocks' less than stellar performance.
When you can find solid blue-chip stocks that are also growing earnings at a fair clip, dividend growth is usually not too far behind. That can be an extra kicker for long-term investing returns.
Take for example Transurban Group (ASX: TCL), which pays a 4.3% partially franked yield. I usually like to see a slightly higher yield from a blue-chip, but the toll road and tunnel owner and operator is expected to raise earnings by over 20% annually in the next few years. That explains the high 42 price-earnings ratio and a yield lower than regular. It has expanded its asset portfolio by acquiring 5 of the 6 toll roads and tunnels in Brisbane.
The future income streams of this move will build up over time. Part of those growing earnings could be your future dividend income. But at current prices, I'd look for a lower entry point to give a better margin of safety.
National Australia Bank Ltd (ASX: NAB), on the other hand, offers an interest short-term opportunity. For many years its earnings have been held back because of poor performance by its UK businesses. NAB's stock yield, currently at a whopping 6.0% fully franked, is the highest of the big four banks, but at the price of slower earnings growth.
That may change as its new CEO Andrew Thorburn is committed to selling off those weak businesses for the good of the whole. This move could rerate the bank and bring it more in line with its immediate rivals. Definitely add this one to your watchlist and keep up with the news.
