The low cash rate reality of today's Australia has created something of an income scramble amongst investors. As a result some think many of Australia's most popular blue-chip stocks are overvalued in part because they offer a yield significantly above cash.
Indeed some have unkindly christened the global phenomenon of buying assets with little regard to their value, as long as they yield more than cash, as the dash for trash.
The term even arriving in the financial lexicon, as defined by Investopedia: "The dash to trash often occurs near the end of a prolonged bull market, when investors begin to seek higher returns regardless of the risks involved. The longer it has been since a market downturn, the more likely it becomes that large pockets of investors will feel bulletproof."
Give credence to this theory and you should avoid some potentially overvalued popular stocks on the ASX and instead find stocks with yields and valuations that offer your investments the best chance for capital growth. Here are a few to consider.
Telstra Corporation Ltd (ASX: TLS) looks a sound investment for those seeking fully franked income and potential for capital growth based on current valuations. Selling for $5.01 it's offering up a yield of 5.79% based on forecasts of a 29 cents per share payout for FY 2014. That yield could climb even higher if the group seeks to manage its bulging cash pile by raising the final dividend. Given the group's dominance and big growth potential it's hard to look past it at current prices.
iiNet Limited (ASX: IIN) is another telecommunications and internet service provider that now has 25% of the national broadband network with over 30,000 active NBN customers and potential for that to grow as the NBN is rolled out further.
Perth-based the business is attempting to expand into the Eastern States and success in this strategy should deliver the organic growth required to take it to another level. Selling for $7.46 it trades on a forward price-earnings of 18 based on analyst forecasts and fully franked dividend yield of 2.7%. Rival M2 Group Ltd (ASX: MTU) is another fast-growing telco provider that looks good value selling for $5.91.
Kitchen appliance maker, marketer and distributor Breville Group Ltd (ASX: BRG) just posted sales growth of 23.2% for the six months to December 2013. Total revenues were $311.3 million, Australia and New Zealand contributing $144.6 million and North America $130 million. Rest of the world revenues made up another $36.6 million and were up 69.1% on the prior corresponding six-month period.
Breville wants to repeat its remarkable North American success in the UK and other markets, hiring celebrity chef Heston Blumenthal as a brand ambassador. With a strong balance sheet and no gearing it has plenty of cash to support the international expansion. Selling at $9.37 it trades on an estimated forward price-earnings around 23, meaning the market likes its prospects to grow and rightly so. Average annual shareholder return over the last five years is 79.9% and it looks a business with plenty of room to run.
Foolish takeaway
As the market climbs buying opportunities become harder to find. That's why identifying companies at decent valuations with big growth runways remains the key to success. At around $5, I think Telstra looks the best option for investors looking to build their portfolio's core.
