Buying high-yielding stocks is one of the best ways to profit from the Reserve Bank's shock decision to slash interest rates yesterday.
The RBA cut the nation's official cash rate by 25 basis points to a new record low of 2.25%. While a reduction in interest rates was expected at some point this year, many analysts did not expect it to come as soon as February.
The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) surged more than 1.6% following the announcement, climbing to a new six-year high at 5,717 points. Unsurprisingly, the bourse was led by some of the market's most popular dividend stocks as investors repositioned their wealth out of term deposits and other low-yield asset classes.
Telstra Corporation Ltd (ASX: TLS), for instance, rose 2% to a new 14-year high at $6.68, while Commonwealth Bank of Australia (ASX: CBA) recorded a new all-time high at $90.67, up 1.1% compared to Monday's closing price. Australia and New Zealand Banking Group (ASX: ANZ) delivered the biggest gain of all the big four banks, rising 2.2% while National Australia Bank Ltd. (ASX: NAB) also jumped 1.6%.
While each of those stocks could continue to rise in the near-future, none of them seem too appealing for the long term. They each trade at somewhat expensive premiums which could limit their ability to deliver market-beating gains – regardless of their high dividend returns.
4 dividend stocks to consider
Investors wanting to make the most of the Reserve Bank's cut ought to look at some of the market's other high-yield alternatives which, for one reason or another, haven't attracted the same kind of attention from investors.
Woolworths Limited (ASX: WOW) and Coca-Cola Amatil Ltd (ASX: CCL) are both excellent examples. Both stocks find themselves out of the market's favour, yet both represent fantastic long-term investment opportunities. Woolworths is trading at a 17% discount compared to its 52-week high and offers a forecast yield of 4.5% (fully franked). Meanwhile, Coca-Cola Amatil is tipped to yield 4.2%, franked to 75%.
Investors may also want to consider companies such as Insurance Australia Group Ltd (ASX: IAG) and JB Hi-Fi Limited (ASX: JBH). According to Morningstar estimates, Insurance Australia Group will yield 5.9% in the 2015 financial year, fully franked, while JB Hi-Fi should yield roughly 5.2%, also fully franked.
There's one more dividend stock which our top investment advisor believes is an even greater buy today.
