The Australian share market traditionally trades with an average dividend yield of approximately 4%.
While this is a great yield and better than most savings accounts and term deposits, there are even better yields out there for income investors.
For example, the Australian dividend stock in this article has been named as a buy and tipped to rise very strongly and pay a 7% dividend yield.
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Which Australian dividend stock?
The dividend stock in question is intellectual property (IP) services company IPH Ltd (ASX: IPH).
Thanks to its defensive earnings and acquisitions, it has been one of the most reliable dividend payers on the Australian share market in recent years.
In fact, it has lifted its dividend each year for a decade, even during the COVID-19 pandemic when most Australian dividend stocks suspended their payouts.
Goldman Sachs believes this positive form can continue for the foreseeable future. After rewarding its shareholders with a fully franked 35 cents per share dividend in FY 2024, the broker is forecasting increases to 36 cents per share in FY 2025, 39 cents per share in FY 2026, and then 41 cents per share in FY 2027.
Based on the current IPH share price of $5.13, this will mean fully franked dividend yields of 7%, 7.6%, and 8%, respectively.
Big returns
Goldman notes that this Australian dividend stock recently held its annual general meeting. And while it acknowledges that it is performing a touch short of expectations, it remains positive and believes things could pick up in the second half.
In light of this, it feels its shares are cheap at just 11x forward earnings and sees potential for a re-rating in the near future. Goldman explains:
In our view, IPH's operating performance is tracking slightly softer compared to our expectations though it remains early in the year and management flagged the potential for an improving operating outlook into 2H25 (including improvements in US PCT filings, a lead indicator for filings in secondary markets). Execution on returning all parts of the business to organic revenue and earnings growth remains the key catalyst to re-rate the stock which we highlight is trading at 11x NTM P/E. Buy.
According to the note, the broker responded to the annual general meeting update by retaining its buy rating and $7.50 price target on the Australian dividend stock.
Based on its current share price, this implies potential upside of 46% for investors over the next 12 months.
Including dividends, this means that a total potential return well in excess of 50% is possible between now and this time next year according to Goldman Sachs.
