For many reasons, dividends are attractive. You might be approaching retirement, or simply want the security of some income from your investments.
Adairs Ltd (ASX: ADH)
Adairs is a retailer of Manchester and homewares. The company has over 160 stores across Australia in five physical store formats, comprising Adairs, Adairs Homemaker, Adairs Kids, UHR and Adairs Outlets. The company also runs a membership program called "Linen Lovers" that entitles members to lower prices.
Analysts have forecasted a dividend of 10 cents per share in 2018. At the current share price that equates to a dividend yield of 4.7%. The dividend is fully franked, meaning that the when tax credits are included the yield is equivalent to 14.3 cents per share, or 6.7%.
The company has increased its revenues by 25% over the last two years, and analysts have forecasted increases in earnings per share. Current debt levels look manageable. On this basis, the company looks healthy.
SKY Network Television Ltd (ASX: SKT)
SKY Network Television is a provider of multi-channel television services, including both pay television and free-to-air television services in New Zealand. The company distributes local and international content to its subscriber base through a digital satellite network.
Although analysts have forecasted a 35% drop in the dividend payment in 2018, the forecasted 20 cents per share still represents a 7.8% yield at the current share price of $2.56. However, dividend payments over the previous two years have not been franked, meaning investors won't receive any tax credits on the dividend paid.
SKY Network Television has run into some headwinds, primarily due to 'cord cutting'. While revenues have remained steady over the last three years, earnings before interest and tax have slumped. In this time the company has chosen to return more money to shareholders by increasing its payout ratio. Navigating the widespread movement away from pay television is a major hurdle.
Genworth Mortgage Insurance of Australia (ASX: GMA)
Genworth's primary business is involved in the provision of lenders mortgage insurance.
Analysts have forecasted Genworth's dividend payment to remain at 28 cents per share. At the current share price of $2.97 that equates to a yield of 9.4%. Further, with that dividend fully franked, the total yield including tax credits is around 13.5%.
Some things to keep in mind are that the company has paid out more in dividends than it has earnt over the last two years. This is, for the most part, an unsustainable strategy. However, dramatic reductions in the number of shares outstanding will work in shareholders' favour. Any increase in bad loans or a drop in the housing market could present some headwinds for the company.
Fortescue Metals Group Limited (ASX: FMG)
Fortescue Metals is involved in the mining and trading of iron ore.
Analysts are forecasting the dividend at 37 cents per share, down from 45 cents in 2017. Nonetheless, at the current share price of $5.07, the reduced dividend represents a yield of 7.3%. With full franking, the dividend is equal to a yield of 10.4% when tax credits are included.
Fortescue Metals looks cheap at the current price. The current price to earnings ratio is 7, and I think that there is a margin of safety there for investors.
Foolish takeaway
Dividends are an attractive proposition for investors, particularly those in retirement. These four companies offer some high yields, but beware of potential capital losses. Adairs and Fortescue Metals look strong with room for capital growth in addition to the dividend yield that you'll collect along the way.
