With the recent rally in share prices many historical dividend yields are starting to shrink below the much sought after 5% level. Over the past 3 months the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen nearly 11%, with many blue chips including the four major banks rising even more. This has pushed the historic dividend yield on a number of widely held stocks such as Commonwealth Bank (ASX: CBA) down below 5%.
Having said that, what really matters is the level of dividends companies pay in the future. On that score, the outlook for shareholders in Commonwealth Bank is better. According to Morningstar, consensus estimates for financial year (FY) 2014 are for dividends of 384.5 cents at Commonwealth Bank, which means it is trading on a forward dividend yield of 5.2%.
While expected growth in dividends in the coming year amongst some blue chip stocks offers some income support to investors, looking further afield it's possible to pick up stocks currently trading on dividend yields above 6% (based upon Morningstar's FY 2014 consensus dividend expectations).
- Ardent Leisure (ASX: AAD) owns and operates a number of leisure and entertainment assets in Australia, New Zealand and the USA. It is expected to pay 12.8 cents in dividends in FY 2014, placing the stock on a forecast yield of 7.1%.
- Prime Media (ASX: PRT) operates regional television broadcasting and radio broadcasting services as well as having online operations. The media company is expected to raise its dividend to 7.6 cents per share this financial year, which at current prices means the stock is trading on a 7% forward dividend yield.
- Charter Hall Retail (ASX: CQR) provides investors with exposure to neighbourhood and sub-regional supermarket-anchored shopping centres around Australia. With a FY 2014 forecast of 27.5 cents in dividends, the stock is trading on a 7.4% yield.
- Bradken's (ASX: BKN) shares were caught up in the mining service sector-wide sell-off earlier in the year which is partly explains why the company has an above average yield. With a forecast of 37 cents in dividends in FY 2014, the stock is trading on a 6.3% dividend yield.
Foolish takeaway
With the market hitting a multi-year high, many investors will be questioning how much further share prices can run in the near term. One advantage of high yielding stocks is that dividends received can be held by investors as cash until bargain investment opportunities present themselves in the future.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
