A lot of retail investors in the local share market tend to love dividends as they're towards retirement age or planning for retirement through investments in their bulging self-managed superannuation balances after a long time in the work force.
Whether you should invest in the share market for income or growth is another article, but given the tax effective benefits of the franking credit refund system and today's low paltry returns on cash deposits it's obvious why dividend shares are in favour.
On a daily basis Australia's largest broker by retail volume, CommSec, as the brokerage arm of the Commonwealth Bank of Australia (ASX: CBA) reveals what shares are the most popular "buys" by volume amongst retail investors.
So let's take a look and see where the crowd thinks is the best place to park you money in the share market.
Westpac Banking Corp (ASX: WBC) is widely tipped by the sell side broker community as being undervalued right now with Brisbane-based broker Morgans slapping it on its "buy list" thanks to its "relatively low risk" loan book positioning.
Of course Westpac also pays a bumper 6.8% trailing dividend yield plus the tax effective benefits of franking credits. This is based on a trailing dividend of $1.88 and today's share price of $27.56.
I must say on face value that looks attractive, but a high dividend yield is often a sign the market expects dividend cuts ahead. Still you could do worse than buying Westpac shares for retirement.
National Australia Bank Ltd (ASX: NAB) offers a 7.2% trailing yield plus franking credits based on today's price of $27.34. This suggests to me that a dividend cut is coming that will perhaps be blamed on higher funding costs and the fallout from the Banking Royal Commission. As such I'd tread carefully around NAB shares as it looks like the market expects a dividend cut and the market is rarely wrong.
CSL Limited (ASX: CSL) went ex-dividend yesterday and given its forecast for profit growth of 10%-14% in FY 2019 after a spectacular FY 2018 of 29% profit growth I'm not surprised retail investors are snapping it up at $209.80 today. Given its competitive advantages, moat and what appears to be extremely strong underlying demand for its products I'd rate the stock a buy today.
Macquarie Group Ltd (ASX: MQG) is another stock I'd prefer to buy before NAB or Westpac thanks to its superior international growth prospects. It also appears likely to avoid most of the fallout from the Royal Commission thanks to its minor exposure to Australia's residential home loan market. This means it also has less exposure to falling Australian house prices. The yield is 4.2% based on today's price of $123.90, but importantly it looks capable of raising dividends over say the next 2-4 years.
Australia & New Zealand Banking Group (ASX: ANZ) – can you spot a theme here – the magnetic 5.7%dividend yield plus the tax effective benefits of franking credits. As ANZ faces the same headwinds as the other big banks I expect its shares will track largely sideways over the next couple of years.
Transurban Group (ASX: TCL) is also prized by retail investors for its reliable dividend payouts. It recently completed a $4.2 billion capital raising to fund a deal to purchase Sydney's WestConnex motorway project and may offer investors a good mix of growth and income from here. Often described as a bond proxy it's also a heavy favourite of institutional investors.
