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3 fully franked dividend shares for your 2016 watch list

Credit: Mark Moz

With the sell-off in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) notching up a three day losing streak some investors may be starting to get nervous about just what 2016 has in store for them.

Long-term investors are less likely to be worried about the short-term volatility however. Instead, they will be using any price weakness to add to positions and they are also likely to be more focussed on income stocks, given the important role dividends regularly play in overall investment returns.

Here are three income stocks which importantly possess two key attributes, namely – they pay fully franked dividends and the dividends are comfortably covered by earnings.

  1. Wesfarmers Ltd (ASX: WES) –  While earnings are forecast to increase slightly for this conglomerate, dividends are forecast to decline this financial year. This scenario implies an increase to the coverage ratio and also suggests an expected dividend yield 4.9%.
  2. While National Australia Bank Ltd (ASX: NAB) appears to be trading on the highest forecast yield amongst its peer group, the extra earnings coverage of Australia and New Zealand Banking Group’s (ASX: ANZ) dividend arguably makes it superior. With a forecast dividend yield of 6.8% this would be my pick of the banking sector.
  3. Telstra Corporation Ltd (ASX: TLS) continues to appear a reliable “go-to” income stock.  With earnings forecast to rise at a faster rate than the dividend, the earnings coverage ratio looks set to expand. Based on consensus expectations for 2016 the stock is trading on a yield of 5.8%.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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