4 top income stocks for 2018

Where to find decent yield outside of the Big Four and general insurers.

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Australia's Big Four banks and general insurers are at the top of many income investors' lists and for good reason, paying fully-franked dividend yields over 5%. Those companies are already well known for their large, tax-effective distributions, so below I've highlighted four other stocks that I believe will reward income investors in 2018.

Macquarie Group Ltd's (ASX: MQG) dividend has grown strongly over the last five years, with a compound annual growth rate of 21%. The investment firm currently yields around 5%, though this is somewhat dampened by the fact it is only partially franked as significant group earnings are generated overseas. Macquarie is expecting to increase profits in FY2018 and this should mean higher distributions to investors.

Woolworths Group Ltd (ASX: WOW) may be a surprise inclusion on this list, given the consumer staples giant's fully-franked yield of just 3%. I'm expecting higher dividends to come in 2018, as the company recovers from the Masters debacle and regains its foothold in the supermarket business.

Woolworths increased its dividend by 9% to $0.84 in 2017, but this amount is still well shy of the $1.39 that was distributed in 2015. A stronger focus on core business activities has improved recent performance and outlook, as the company seeks to sell its national petrol station network to BP.

The ACCC recently announced it intended to block the $1.8 billion sale, and while disappointed by the decision, both firms appear committed to getting a deal done. That may require divestment of certain stations to appease the regulator, perhaps to other operators like Caltex with whom Woolworths currently has a relationship. Proceeds from the eventual sale of the petrol business could be used to improve existing supermarket fit-outs, shore up the balance sheet and increase the dividend.

WAM Capital Limited (ASX: WAM) has increased its dividend every year for the last five years and now yields more than 6%, fully-franked. WAM Capital is the flagship listed investment company (LIC) from Wilson Asset Management with an investment focus on small to medium sized ASX-listed companies. Since inception in 1999, WAM Capital has outperformed its benchmark ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) index by an average 9.4% per annum.

Platinum Capital Limited (ASX: PMC) is another LIC which pays a healthy dividend, this time from Platinum Asset Management Limited (ASX: PTM) and with an investment objective to gain exposure to businesses from overseas markets. This LIC has a current yield of almost 5%, fully-franked, and has achieved a total average return of 12.8% per annum to shareholders since 1994.

Motley Fool contributor Ian Crane owns shares in Woolworths Group Ltd. 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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