The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has staged an impressive recovery over the last month, rising more than 6%. For the year, the index is still down just over 1%, but if the current trend continues, we could see a positive result in 2015.
Much of that recovery can be attributed to the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) – given they make up such a large percentage of the index just on their own.
Clearly investors hunting for yield haven’t been put off by the banks’ capital raisings, with all four banks forced to raise capital by issuing new shares at discounted prices. But as a show of loyalty to their shareholders, all four are likely to raise prices for customers to protect their earnings and dividends.
There’s still a fair amount of risk that they will be forced to raise even more capital – and issue more shares at even further discounted prices, not to mention a heightened risk of lower earnings and dividends in the near term.
For income investors looking for alternatives, there are certainly plenty of smaller companies paying bigger dividends.
Here’s my selection of five of them:
Tamawood Limited (ASX: TWD)
The housing builder has a concrete history of paying high dividend yields over the past decade – on average 9.7%, according to Commsec – and that’s before franking credits, which would boost the gross yield to 13.4%. Tamawood’s current trailing yield is over 7%.
Intueri Education Group Ltd (ASX: IQE)
The New Zealand-based vocational education provider has been dragged down by issues in the vocational sector in Australia, perhaps unfairly. Last financial year, Intueri paid a dividend of 12.8 cents – the equivalent of a 10.6% yield (partly franked). Investors not only have growing dividends to look forward to but a likely recovery in the share price. The 52-week share price high was $2.84, posted in February this year.
Insurance Australia Group Ltd (ASX: IAG)
One of Australia’s largest insurers currently pays a dividend yield of more than 5%, fully franked. Well managed and fairly conservative, IAG also has a strong record of delivering growing dividends to shareholders.
360 Capital Industrial Fund (ASX: TIX)
With a forecast dividend yield of 9.2% unfranked, this industrial property trust (or A-REIT) is also trading below its net tangible asset value. Essentially, 360 Capital earns income from owning warehouses and distribution properties throughout Australia for some of Australia’s largest companies.
Dicker Data Limited (ASX: DDR)
Virtually unknown amongst investment banking analysts thanks to its low liquidity and market cap of just $291 million, the wholesale software and hardware distributor boasts a dividend yield of more than 5% fully franked. The bonus for investors jumping in now is that revenues and earnings (and dividends too) are likely to soar thanks to the acquisition of Express Data in April last year.
That’s a wide selection of income stocks that investors could stick into their portfolios and virtually forget about, and just let the dividends roll in.
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Returns As of 6th October 2020
Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga
Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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