Many investors have learnt the hard way that focusing on dividends and yield is fraught with problems as not all dividends are maintainable.
Shareholders in BHP Billiton Limited (ASX: BHP) and Woolworths Limited (ASX: WOW) in particular are well aware of this situation with BHP's recent interim dividend being chopped from 80.82 cents per share (cps) in the prior corresponding period (pcp) to just 21.37 cps in March this year.
Likewise, Woolworths' latest interim dividend was sliced from 67 cps in the pcp to just 44 cps this year.
The experience learnt from these "blue chips" highlights that a focus on rock solid, maintainable dividends is extremely important for income seeking investors.
Here are four stocks that all offer trailing dividends which are well covered by earnings and importantly that are also expected to grow both earnings and dividends in the current financial year.
- IOOF Holdings Limited (ASX: IFL) – The diversified wealth manager paid a dividend which was 1.2x covered by earnings and is currently trading on a trailing fully franked dividend yield of 6.5%.
- Harvey Norman Holdings Limited (ASX: HVN) – This leading retailer also paid a dividend which was 1.2x covered. The dividend is also fully franked and based on its current share price the stock is trading on a trailing yield of 5.1%.
- QBE Insurance Group Ltd (ASX: QBE) – Australia's leading global insurer paid a dividend that was 1.4x covered. The stock is trading on a fully franked trailing dividend yield of 4.6%.
- Commonwealth Bank of Australia (ASX: CBA) – Australia's largest bank paid a dividend last year that was 1.3x covered by earnings. The stock currently trades on a trailing fully franked dividend yield of 5.5%.
