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3 ASX dividend stocks to buy, and 2 to avoid for falling interest rates

The Reserve Bank of Australia hasn’t cut interest rates since May, but that could soon change.

As highlighted by the Fairfax press, Glenn Stevens, who chairs the RBA, said that the Australian economy has a good chance of surviving a hard landing in China, referring to the likelihood of the Australian dollar falling if China did suffer a downturn. In this scenario, a lower Australian dollar would likely bolster our exports and make our products more competitive with those provided by other countries — that’s great for our economy!

Here’s the kicker. Stevens also referred to the Board’s ability to cut interest rates again, if necessary, during a speech to a parliamentary committee. As quoted by Fairfax, he said “We can lower interest rates if there’s a case to do that.”

For various reasons, including Sydney’s and Melbourne’s red-hot property markets, the Bank has been somewhat hesitant to lower interest rates any further in recent months. It has even been cautious about indicating that further interest rate cuts are in the pipeline so as to not add fuel to the fire.

However, the market has become increasingly expectant of at least one more interest rate cut before the end of 2015 – particularly after the recent turmoil experienced on the sharemarket. Stevens’ comments provide a good indication that those expectations may be right.

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rebounded from a 1% loss to a 0.3% gain this morning following the comments. Indeed, it was the usual dividend stocks that led the charge, including Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA).

While their dividends would certainly become more attractive should interest rates fall even further however, I believe there are even greater opportunities out there for a low interest rate environment.

First, investors could look at Collection House Limited (ASX: CLH), which not only possesses an attractive dividend, but also compelling growth prospects. The debt collection agency has a strong track record for growing revenues and earnings – a trend I expect to continue over the coming years – and offers a 3.8%, fully franked dividend yield.

If it’s blue chips that you’re after, now could also be a good time to consider adding Woolworths Limited (ASX: WOW) to your holdings. There’s a black cloud lingering over the company’s immediate future with earnings expected to take another hit in the current financial year, but much of that has arguably already been priced into the shares. At $24.82, the shares offer a 5.6% fully franked dividend yield.

JB Hi-Fi Limited (ASX: JBH) is another retailer worth looking at. Despite the headwinds facing the retail industry, the company has time and time again proven its ability to adapt to changing consumer trends, as demonstrated by its latest push into white goods. The company offers a 4.8% fully franked dividend yield.

Any of the companies mentioned above could make for great purchases today, although there are a number of other high-yield dividend payers that are also worth considering.

Where to invest $1,000 right now

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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

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Motley Fool contributor Ryan Newman owns shares of Collection House Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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