There has been plenty of talk about interest rates recently. With Australia's cash rate sitting at a mere 1.5% currently, some believe that a rebound is overdue which could reduce the appeal of high-yield dividend shares.
Speculation was enhanced in November when Donald Trump became the victor of the United States presidential race. Trump's main policies are largely pro-growth which, assuming they actually progress, could help some western countries put years of low inflation behind them. In order to temper those higher growth rates, it was said that central banks around the world would begin hiking interest rates, which initially took some of the heat out of high-yield dividend shares such as Sydney Airport Holdings Ltd (ASX: SYD) and Transurban Group (ASX: TCL).
In reality, the Reserve Bank of Australia will, of course, enter 2017 hesitant to cut interest rates any further. For one, lower interest rates could further inflate house prices. Meanwhile, the RBA should retain the ability to cut interest rates further if the economy was to take a turn for the worse; cutting cash rates before it becomes a necessity could put it in a vulnerable position.
Some economists have speculated that the RBA may even look to increase interest rates in 2017, although I would suggest hikes are more likely in 2018 and beyond. Regardless, it seems the RBA would want to hike interest rates slowly, thus limiting the prospect of a panic or widespread loan defaults.
Thus, interest rates are low, and are likely to remain low for some time yet. While investors should be careful to not overpay for shares offering solid dividend yields, that doesn't mean they have lost their appeal entirely.
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One company worth looking at is Retail Food Group Limited (ASX: RFG), the business that owns brands such as Gloria Jeans and Crust Pizza. The company has a strong track record for growing earnings and dividends, and currently offers a fully franked yield of 4%, equating to a gross yield of 5.7%.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – aka Soul Patts – and Telstra Corporation Ltd (ASX: TLS) are worth watching, as well.
Soul Patts is an ultra long-term focused investment conglomerate that has exposure to a number of industries, and reports that it has grown shareholder returns at an annual compounded rate of 16.6% for 40 years. Without suggesting the next 40 years will be similar to that, a track record of that calibre is certainly worth your attention, along with its 3.3% fully franked dividend yield.
Meanwhile, Telstra is Australia's largest telecommunications business. It too offers both stability and reliability, and trades on a 5.9% fully franked dividend yield, grossed to 8.5%. Even if interest rates were to rise from here, that is a very attractive source of income.
