Metcash, Myer, Ausdrill, BC Iron: 4 stocks with huge dividends

Australian companies are renowned for their dividends — looking at these, it's not surprising.

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You'll find no special dividend here; these four stocks have good, well-funded dividend payments that make international stocks look bad. For one reason or another, they're cheap from a valuation perspective, yet still pay dividends from profit. Investors need to be sure that companies that pay dividends like these aren't in share price rescue mode and giving short-term investors something to hold onto whilst long-term balance sheets go astray.

Many investors will be familiar with Metcash's (ASX: MTS) 8% dividend, which includes 100% franking – taking the grossed up dividend above 10%. Its dividend has improved in recent months as a result of the weakening share price.

Lower prices are helping many retail stocks boast strong dividends. Myer (ASX: MYR) is ready to embrace rising consumer confidence and if investors get in now they can take advantage of its 6.7% (around 10% when grossed up) dividend.

Mining services contractor Ausdrill (ASX: ASL) was also battered by poor investor sentiment, reaching a price of just $0.80 per share this year. At that price, its dividend was around 15% without franking credits! However, at its currently price tag of $1.40, investors can still take advantage of a yield of 12% grossed up. For those believing it could be unsustainable, it pays a 12 cent dividend, but Morningstar expects an EPS of 25.8 cents in 2014.

Perhaps the best of these dividends goes to BC Iron (ASX: BCI), a small iron player with a big future ahead. It currently trades on six times earnings and pays a huge 13.68% dividend (grossed-up) based on Morningstar's expected dividend for 2014. BC Iron has been the best performing iron ore play this year, rising nearly 80%. In the full year to 30 June, the company recorded an underlying profit after tax of $71.4 million, up 41% on the previous year.

Foolish takeaway

Investors with their crosshairs fixed only on big dividends will get caught out sooner or later. Valuation and future price movements can quickly wipe out any benefits shareholders receive from focusing on a juicy dividend. These four stocks have great dividends but they're not without risks.

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Motley Fool contributor Owen Raskiewicz owns shares in Ausdrill, Myer and Metcash. 

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