It looks like 2019 could be a tough year for Australian investors who hug the index via significant exposure to big bank shares such as Westpac Banking Corp (ASX: WBC) or National Australia Bank (ASX: NAB) to get their dividend returns.
Falling house prices, higher wholesale funding costs, and rising operational costs could translate to big bank dividend cuts – so dividend investors should look elsewhere for 2019.
Below are three businesses I would happily invest $50,000 in today in order to get a high yield and hopefully some capital growth.
Dicker Data Ltd (ASX: DDR) is an IT hardware distribution business I've owned for several years that continues to offer a big yield and trade on a reasonable valuation.
On an annualised basis it'll earn nearly 20 cents per share placing it on 14.3x earnings with a consistent track record of profit growth adding to the attractiveness of the valuation. Mind you it pays out pretty much all its profits in dividends paying 9.2 cents per share in dividends on earnings of 9.84 cents per share for the six-month period ending June 30, 2018.
When it comes to dividends you should look forward and if we reasonably conservatively assume Dicker Data can deliver 18.5 cents per share in dividends over the next 12 months it offers a yield of 6.5% plus full franking credits based on today's $2.85 share price.
Best of all is that from CEO to COO management are heavy shareholders and investors presumably relying on the dividend growth to boost their own wealth.
Recently, the COO has been buying more shares to add to an already significant holding, which in my view is quite a bullish signal for an IT hardware distribution business.
Magellan Financial Group Ltd (ASX: MFG) is in my view the only investment grade fund manager on the ASX, unless you include Macquarie Group Ltd (ASX: MQG).
Magellan recently hiked its dividend policy to payout 90%-95% of net profit in dividends, and this makes sense seeing it's a capital light business that requires minimal reinvestment back into the business as an international equities fund manager.
For the six months ending June 30 2018 it paid 90 cents per share in dividends made up of a 75.1 cents in ordinary dividends and 14.9 cents as a performance fee dividend.
Even if we conservatively remove the performance fee dividend and an 8.4 cents top up amount added to the most recent dividend to double the remaining ordinary dividend (66.7 cents) to 133.4 cents the yield is 5.3% plus full franking credits at today's price of $25.10.
Again, I would not be surprised if the yield available to investors is in fact higher given Magellan has once again grown FUM strongly over the six months to December 31, 2018.
Sydney Airport (ASX: SYD) is a business I don't own, but one I'd be interested in buying given its big dividend, monopoly like status, and growth prospects backed up by the rise of the Chinese and wider Asian middle class.
The airport will pay out 37.5 cents per share in dividends over 2018 which puts it on a trialing yield of 5.4% plus full franking credits based on today's share price of $6.90. In early November the stock traded under $6.50 offering a yield of 5.8% which is what I would require to compensate me for the risks of owning an equity given rising benchmark debt rates globally.
