Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA) and Retail Food Group Limited (ASX: RFG) will make good income stocks, bought at the right price.
Sure, I'm not going to win any prizes for originality but there are good reasons to consider owning these shares if you get the chance to buy in cheap.
Telstra
Telstra is facing stiff competition from the likes of TPG Telecom Ltd (ASX: TPM), Optus and Vocus Group Ltd (ASX: VOC). However, of all the telcos I think it is best prepared for the post-GFC era given its commanding market share of mobile and extensive network. Its shares appear a little expensive but even at today's prices they are expected to offer a fully franked dividend yield of 6.3%. I would look to buy shares below $4.50.
Commonwealth Bank
Commbank needs no introduction but like Telstra its incumbency as an industry leader affords it a premium share price valuation and growth prospects. In the next five years, I do not believe Commonwealth Bank will continue to grow at the same pace as it has over the past 20 years. However, at the right price its dividend income will be very tempting, especially when it is coupled with modest growth. I would look to buy shares below $70, ideally.
Retail Food Group
Retail Food Group is the owner of popular casual dining brands like Donut King and Crust Pizza, but also coffee chains such as Gloria Jeans and Esquires. The $1.14 billion company is more geared to growth than Telstra or Commbank but it also has an impressive record for paying dividends. At today's prices it is expected to pay a fully franked dividend yield of 4.2%. That's 6% after tax for eligible investors and SMSFs. I would look to buy below $6.
Foolish Takeaway
Investing for dividends isn't always easy because investors need to assess the company and make an informed assessment of the share price valuation. But given the current state of the bond market and low yields on things like term deposits, traditional 'income' stocks are also likely to be very sensitive to changes in market expectations for interest rates. Being patient and waiting for a better entry point may save you money.
