Throughout the early months of 2013, investors were chasing high yielding stocks in anticipation of fully franked yields and mild growth. The prospect of lowering interest rates pushed money from term deposits and bank accounts into the local stock market. If you were in early enough, it may have paid off.
Although it took months to build up the stock market it took only a few weeks to bring it down. It was bad for those who delayed the transition from bank accounts to bank stocks and some copped a 20% loss in the first six weeks. However, there is some good news. With great companies now reduced in price, not only do you get a bargain for your money, you also get high yields. Here are five dividend plays that also offer room for growth.
Banking stocks were the blue chips that got hit the hardest in recent months. The big four dropped significantly despite increased profits. ANZ (ASX: ANZ) currently pays a 5.1% fully franked dividend and has a solid long term upside.
With the exception of mining services, retailers have got hit harder than most stocks in the past two years. However, the relentless lack of optimism has meant investors are able to take advantage of some great yields. Myer (ASX: MYR) sports a low price-to-earnings ratio and a huge 8% fully franked yield.
As Telstra (ASX: TLS) followed the S&P/ASX 200 (ASX: XJO)(Index: ^AXJO) down, its legendary dividend yield has grown. Even though you could have got a better deal on its full-year 28 cent dividend when it was only $2.60, at current prices, it's still an attractive 5.9% fully franked.
Recently, a brick-and-mortar retailer impressed the market with a healthy 6.5% growth despite horrible market conditions and increased competition. To complement Metcash's (ASX: MTS) solid growth prospects is a current 8% dividend yield that is one of the best on the market.
Last but not least is IMF Australia (ASX: IMF), a diversified financial that provides capital for large lawsuits in Australia and through its wholly owned subsidiary in the US. It's not every day a small cap pays a 5.7% fully franked dividend — perhaps investors could buy now and hold forever.
Foolish takeaway
Buying stocks based purely on dividends and price-to-earnings ratios has proven time and again to be foolish. Instead, investors should focus on combining growth prospects, good balance sheets, a healthy industry and good management to give the company the best chances of a positive return on investment. Take time and find the right stocks, after all patience doesn't lose you money.
The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
More reading
- 10 stocks to hold forever
- 10 of the ASX's best dividend plays
- 5 stocks, 10 years – 1,000% return
- A punt on Aristocrat
Motley Fool contributor Owen Raszkiewicz owns shares in IMF Australia, Metcash, Myer and ANZ.
