Dividends are the icing on a savvy investor's cake.
However, a rotten flavoured cake filling will quickly wipe any benefit you get from a thin icing.
The growth (or lack thereof) in stock prices will quickly outweigh any potential benefit an investor receives from dividends. However, in my opinion, there are still some great dividend stocks on the S&P/ASX 200 (ASX: XJO) (^AXJO) which, in 2014, will allow you to have your cake and eat it.
I mean, there's no reason you can't buy a stock which pays a 5% dividend, plus franking and will reward you with capital gains. Many of the ASX's best dividends however, will not make this list, because they are too expensive or fully valued for short term growth. For example, bank stocks appear to be fully valued – which poses risks for dividend hungry investors.
One stock, which will continue to maintain a high price during a low-interest rate environment is Telstra (ASX: TLS). Telstra is legendary for its 28 cent fully franked dividend. However, if the NBN goes according to plan, don't be surprised if its board decide to up the payout to 30 cents. Its current yield is 5.6%.
A play on lower interest rates and rising consumer and business confidence in 2014 usually involves bank, building or other high yielding industrial stocks. One retail stock I've identified which stands to benefit from this cyclical macroeconomic tailwind is Myer (ASX: MYR). Myer has reported 'patchy' sales but, like all retailers, is expecting a busy holiday period. Even if its dividend per share drops in 2014 to 17 cents, it will still be trading on a yield of 5.9% fully franked.
It could be controversial but I believe Leighton Holdings (ASX: LEI) is another company which pays a top dividend to shareholders. Morningstar are predicting a spike in both earnings per share and dividends per share – a full year dividend rise to 96 cents means it's currently trading on a yield of 5.8% with a 50% franking.
Foolish takeaway
In investing, there's no reward for being unique, but sometimes looking outside the top stocks on the ASX can deliver a number of unexpected opportunities. Of course profits aren't guaranteed, but dividend hungry investors need to remember you can only have sustainable dividends with sustainable earnings.
