This month the Board of the Reserve Bank of Australia (RBA) made the decision to drop the official cash rate by 25 basis points to a record low 2%.
For many self-funded retirees who hold their savings in a deposit account it's bad news as their income just got squeezed that little bit more.
For investors who are seeking out higher returns and income from the share market, thankfully there are still a number of attractive opportunities available that will provide them with dividend income far above the official RBA rate of 2%.
Forget about it!
While Telstra Corporation Ltd (ASX: TLS) is a perennial favourite amongst income-seeking investors it doesn't make my list of income stocks.
Although the telco giant's share price has been falling recently – the stock is down from a February high of $6.74 to $6.01 a share today – the stock is still not appealing in my view. Yes the forecast yield is an attractive 4.9% fully franked but with the stock trading on a hefty multiple of around 17x earnings, the risk of capital losses wiping out the returns from dividends is just too high for my liking.
Better alternatives elsewhere.
Instead of Telstra, here are 2 stocks to consider, but remember the yield on a stock should never be considered in isolation it should be assessed in conjunction with the overall valuation you have for a particular stock.
Remember, it only takes a small decline in the price of a share to completely wipe out the value of the dividends you may receive. In other words, think about your overall level of wealth, not just the headline yield.
Suncorp Group Ltd (ASX: SUN) – Operating across both the insurance and banking sectors Suncorp provides a more diversified earnings stream for shareholders compared with owning either a bank or an insurance company. With Suncorp trading on a forecast price-to-earnings (PE) multiple of 14.2x and a fully franked yield of 6.5% the stock isn't looking excessively priced and the yield looks attractive too.
Wesfarmers Ltd (ASX: WES) – While the group is trading on a high forward multiple it is also cycling record low coal prices and a decline in earnings due to the decision to offload non-core assets at attractive prices. Importantly, there appears to be solid growth potential amongst its current retail businesses– better than rival Woolworths Limited (ASX: WOW) – and also upside if or when the coal market improves. With a forward yield of 4.6% fully franked, the stock could be a solid addition to an income seeker's portfolio.
