Last week I was disappointed to find that the National Australia Bank Ltd. (ASX: NAB) would only offer me 2% per year on my “bonus” cash savings account, which after allowing for inflation effectively means any savings I have will be going precisely nowhere in the year ahead.
Given that real interest rates are now effectively not much more than zero for cash savers it’s no surprise that many investors are turning to the share market in pursuit of superior returns. However, it’s no use buying overvalued stocks as capital preservation should remain the primary aim for income seekers in buying companies with the potential to grow their profits and share prices over a three to five-year time horizon.
Below I have five decent dividend payers to beat low cash rates and hopefully deliver some capital growth over the years ahead.
Magellan Financial Group Ltd (ASX: MFG) is the international equities manager that offers a trailing fully franked 3.8% dividend yield when selling for $23.42. The group is excellently managed and delivering consistent retail funds under management growth thanks to the increasing popularity of its international equities funds and strong advisory distribution networks. Analysts are forecasting dividends to edge higher out to FY18 and it looks a sound income prospect with exposure to a stronger US dollar. I would allocate $12,000 to Magellan.
Challenger Financial Group Ltd (ASX: CGF) is another financial services business that trades ex-dvidend today, however, this may give long-term focused investors the opportunity to purchase shares at a decent discount to recent prices. Challenger has some powerful tailwinds thanks to the ageing population and today’s low cash rate world helping the margins and popularity of its annuity products. Selling for $8.96 the stock offers a trailing fully franked yield of 3.6% with analysts’ forecasts for steady dividend growth out to 2019. I would allocate $12,000 to Challenger.
Westfield Corp Ltd (ASX: WFD) is the US and UK focused shopping centre operator that recently opened its flagship US$1.5 billion Westfield World Trade Centre in New York. It currently has a US$9.5 billion investment program in flagship assets and its experienced management team should be worth backing to deliver a market-beating return on investment. The stock sells for $10.20 with a yield of 3.3% and direct exposure to a falling Australian dollar. I would allocate $12,000 to Westfield.
Iress Ltd (ASX: IRE) is the financial software business that is growing strongly in the UK and offers market-leading products to the world’s biggest financial services players that generate sticky and recurring revenues on high profit margins for Iress. As this is as much a growth stock as a yield stock I would only allocate $6,000 of my kitty to Iress, although the trailing 3.5% yield looks attractive, with analysts forecasting strong earnings and dividend growth in FY17.
Amcor Limited (ASX: AMC) is the global packaging giant that also offers investors excellent overseas exposure and some defensive earnings streams. It also has exposure to the growth of the consumer class in emerging markets with analysts forecasting steady dividend and earnings growth in FY17. The trailing yield is 3.4% and its sheer size and production capacity gives it a competitive advantage in that it is hard for competitors to muscle in on its giant operations. Selling for $15.95 it looks reasonable value and I would allocate $6,000 to Amcor.
Where to invest $1,000 right now
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*Returns as of June 30th
Motley Fool contributor Tom Richardson owns shares of Magellan Financial Group and Westfield.
You can find Tom on Twitter @tommyr345
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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