Dividends are an important source of income for many Australian investors and can play an integral role in achieving superior long-term investment results. That is especially true right now following the Reserve Bank's shock decision to lower interest rates last week.
The official cash rate is now sitting at just 2.25 per cent and many economists believe there could be up to two or even three more rate cuts by the end of the year. That could see interest rates fall as low as 1.5 per cent, making term deposits and government bonds even less appealing than they are right now.
That means that investors will need to turn to high-yield dividend stocks to generate a decent income from their investments. However, while many will head straight for the usual suspects, such as Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC), the real profits are likely to be made from some of the market's underappreciated stocks – particularly those with the ability to generate strong capital gains, too.
For superior investment returns in 2015 and in the years to come, here are five stocks which you should consider adding to your holdings today.
1. Woolworths Limited (ASX: WOW) has fallen out of favour with the market based on competition fears, but it appears those concerns have been overplayed. Woolworths is one of Australia's largest and most consistent performers, making it an outstanding buy at $32.23. Its 4.5% fully franked dividend yield is simply the icing on the cake.
2. Coca-Cola Amatil Ltd (ASX: CCL) has also had its fair share of critics recently, and for good reason. While it has struggled over the last two years, management has implemented a plan to turn the ship around which could be a catalyst for strong gains for years to come. Throw in its 4.1% (partially franked) dividend and Coca-Cola Amatil seems like a very sweet investment.
3. Collection House Limited (ASX: CLH), one of Australia's leading debt collection businesses, has earned the market's trust following years of strong returns while it maintains a huge runway for further growth in the years ahead. With its generous 4.1% fully franked dividend yield, you can be paid while you wait for this growth story to play out.
4. JB Hi-Fi Limited (ASX: JBH) should benefit from lower interest rates in two ways. Firstly, low rates should provide a boost for consumer confidence and spending, resulting in greater sales growth. Secondly, investors could increasingly turn to the stock for its 4.8% fully franked dividend yield, which should continue to grow over the coming years.
5. Lindsay Australia Limited (ASX: LAU) is, by far, the most speculative stock on this list, yet it boasts strong growth potential and offers a very generous dividend yield. The transport and logistics company is expanding in far-north Queensland where it should benefit from the skyrocketing Asian demand for Australian seafood, which (obviously) requires refrigerated transportation. The shares are selling for 45 cents per share and yield 4.4% fully franked, or 6.3% grossed up.
There's one more company which could be an even greater way to play this low interest rate environment.
