As the search for yield continues to drive up the share prices of the typical dividend stocks investors love, the need to look further afield intensifies.
Investors aren’t just looking for yield – but for those companies that can deliver it consistently going forward too. That is pushing up the prices of the largest income stocks to where now their dividend yields are unappealing.
Take Sydney Airport Holdings Ltd (ASX: SYD) as an example. The owner of Sydney Airport has seen its share price soar to $7.34 – up 27% in the past year, and the dividend yield sink to 3.9% and that’s unfranked.
Toll road owner and operator Transurban Group (ASX: TCL) is another. The share price is up 22% in the past 12 months, pushing down the dividend yield to 3.93%, and that’s only partly franked.
Here are 9 companies currently paying dividend yields of 10% or more…
|Company Name||Price||Market Cap ($m)||Dividend Yield|
|IPE Ltd (ASX: IPE)||0.23||30.5||30.0%|
|Prime Media Group Limited (ASX: PRT)||0.26||93.4||14.5%|
|Nine Entertainment Co Holdings Ltd (ASX: NEC)||1.00||868.7||12.0%|
|ERM Power Ltd (ASX: EPW)||1.04||254.0||11.6%|
|Aurora Global Income Trust (ASX: AIB)||0.75||5.0||11.6%|
|PTB Group Ltd (ASX: PTB)||0.44||21.1||11.4%|
|Pacific Star Network Limited (ASX: PNW)||0.21||14.7||11.0%|
|Seven West Media Ltd (ASX: SWM)||0.78||1,176.1||10.3%|
|Countplus Ltd (ASX: CUP)||0.79||90.2||10.1%|
Source: S&P Global Market Intelligence
The problem with a number of the companies in the table above is that they are unlikely to be able to continue paying out dividends at their current levels because their earnings are declining. That includes the three free-to-air broadcasters Prime Media, Nine Entertainment and Seven West.
IPE Limited is an interesting company, investing in a number of private equity funds and actually paying out 11 cents in dividends and capital returns to shareholders in the 2016 financial year. At the current price of 23 cents – that’s the equivalent of an astonishing yield of 48.9%. The company says it expects to continue paying out capital returns in the 2017 financial year too.
PTB Group specialises in aircraft engine services in Brisbane. The share price appears cheap and the company paid a fully franked dividend of 5 cents last financial year. However, investors should note that there is a fair degree of risk involved with PTB – thanks to its $13.7 million of debt – and the company issued $700,000 worth of shares to pay the cash portion of the June 2016 dividend.
One thing to note too is that many of the companies in the table pay fully franked dividends – taking the post-tax yield to more than 14%. Considering the long-term average annual return from the share market is around 10%, owning a basket of big dividend payers could easily see investors thrash the market.
For those investors willing to do further research, the 9 companies listed above could be worthy of adding to a diversified portfolio for their income generating ability.
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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.