Although the RBA kept interest rates at 2% this week, the trend seems to be a downward one. As such, dividends are becoming an increasingly important means of generating an income and are helping to prop up total returns for a great number of investors.
Headline Yields
Of course, there are a number of stocks with superb headline yields. One such example is Woodside Petroleum Limited (ASX: WPL), which currently yields a whopping 6.9%. However, looking beyond the headline yield shows that Woodside may not be quite as appealing as at first glance, since its bottom line is set to fall rapidly over the next two years. In fact, in 2016 it is expected to be 44% lower than it was in 2014 and, as such, its dividends are due to shrink during the same period.
While Woodside paid $3.10 as a dividend per share last year, this figure is expected to fall to $1.60 next year and this puts the company on a forward yield of 4.5%. Although this is more appealing than the ASX's yield of 4.3%, Woodside's uncertain earnings outlook may put off some investors from buying a slice of it.
Improving Performance
One company which is set to deliver a much-improved financial performance is Coca-Cola Amatil (ASX: CCL). The beverages company has endured a tough period, but is on-track to grow its bottom line by 5.4% per annum in each of the next two years, as it implements cost-cutting measures and expands into highly appealing Asian markets. As such, its dividend is expected to rise by 3.5% per annum during the next two years, and this puts it on a forward yield of 4.6%.
And, with Coca-Cola Amatil being a relatively consistent dividend payer (for example, it has increased dividends at an annualised rate of 3.2% during the last ten years), its long-term outlook for real-terms rises in shareholder payouts looks sound.
Sustainability
However, it is Transurban Group (LSE: TCL) which offers the greatest sustainability and dividend growth potential. For example, the toll road operator is expected to increase dividends per share by 12.2% per annum during the next two years, and this puts it on a forward yield of 4.4%. While this is slightly behind the yields of both Woodside and Coca-Cola Amatil, Transurban undoubtedly has the most consistent earnings profile, with its bottom line having risen by 19.1% per annum during the last ten years. And, looking ahead, its net profit is set to be 72% higher next year than it was last year.
As such, Transurban appears to be the most appealing dividend stock of the three. Not only does it have the fastest growing profit and dividends, it has the best track record of growth, as well as a robust business model.
