For bondholders and many Australian retirees, last Tuesday's interest rate cut came as a huge kick in the guts. As if the returns from bonds and term deposits weren't measly enough already, the RBA slashed rates to just 2.25%, reducing their returns somewhat further.
But not all Australians were disappointed with the central bank's shock decision. In fact, most people applauded the result!
Shortly after 2:30pm AEST on Tuesday, investors piled their money into the Australian stock market, pushing the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) 1.5% higher, and another 2% in the three days to follow, with their focus set solely on high-yield dividend stocks.
The message is clear: In this low interest rate environment, the best way to superior returns is high-yield dividend stocks.
Believe it or not however…
There is a way you can gain an edge over other Australian investors.
Most investors seem to be targeting the usual suspects. In the last week, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have all surged to new all-time highs, while Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd. (ASX: NAB) also rose to prices not seen in years.
The truth is, each of the stocks mentioned above have become very expensive investment prospects, with a limited ability to generate strong capital gains in addition to their solid yields.
The smart investors, on the other hand, are targeting some of the market's more underappreciated stocks which also happen to offer substantial dividend returns…
5 top dividend stocks for your portfolio
Two big-name companies that investors appear to be overlooking right now are Coca-Cola Amatil Ltd (ASX: CCL) and Woolworths Limited (ASX: WOW). While both possess decent long-term growth prospects, the market is instead focused on their recent shortfalls. In other words, it's time for value investors to swoop in.
At their current prices, Woolworths is yielding 4.5% (fully franked) while Coca-Cola Amatil yields 4.1% (franked to 75%). Both companies would make for excellent additions to your portfolio today.
Those wanting security and big dividends should also look towards Insurance Australia Group Ltd (ASX: IAG), the name behind brands such as CGU and SGIO. While the stock trades on a forecast price-earnings multiple of just 13.3x, it has decent growth prospects, whilst also offering a gigantic 5.9% fully franked dividend yield. Grossed up, that's a remarkable 8.4% yield!
Finally, Super Retail Group Ltd (ASX: SUL) and JB Hi-Fi Limited (ASX: JBH) are also great options for investors wanting superior investment returns. Not only do they each yield 4.7% (fully franked), the pair should also benefit as consumer confidence recovers.
As great as these five stocks are however, there's one more dividend pick which could deliver even greater returns in 2015.