In the current record low-interest rate environment, dividends from reputable companies are the key talking point for investors and their advisors.
Indeed, the difference between income from term deposits and dividends appears only to be growing. It is causing many people to consider taking more risk to get potentially higher returns.
For example, most big banks are offering interest of around 2% per year on their term deposits, which is taxed and at risk of getting eaten away by inflation.
Meanwhile, shares in the following companies are expected to pay grossed-up dividends of 6%.
Retail Food Group Limited (ASX: RFG)
The owner of Donut King, Gloria Jeans, Pizza Capers, Crust Pizza and more is expected to pay a fully franked dividend equivalent to 5.4% in the next year. Grossed-up for those tax-effective franking credits, the comparable yield increases to 7.7%. However, it's important to keep in mind that retailers' profits can be fickle.
WAM Capital Limited (ASX: WAM)
WAM Capital is one of Australia's premier listed investment companies (LIC). Its goal is to invest its founding members' capital at a superior rate to the market. Strong investment performances have enabled WAM to continue to pay a reliable stream of dividends. Based on last year's payout of 14 cents, WAM's trailing dividend yield is 6.5%.
National Australia Bank Ltd. (ASX: NAB)
NAB shares have long underperformed that of its peers in terms of capital growth. However, Australia's third-largest bank by market capitalisation has continued to pay a steady stream of dividends. While NAB and its peers may face stiff competition in years ahead, its dividends are forecast to remain largely intact, at $1.98 in the year ahead — equivalent to 7.5% fully franked.
Foolish takeaway
Even though all of these companies have proven to be strong dividend payers in recent years, it's the future which concerns investors. Therefore, it's important to understand a business, its strategy, the risks, and the likelihood of dividend payments before making an investment decision.
In my opinion, Retail Food Group appears the best value at today's prices. However, it is arguably riskier than both NAB and WAM Capital.
