Many small or medium-sized stocks can have high dividend yields, yet it's not just as simple as "buy the one with the highest yield". Who knows how long they can support the payments if they aren't financially stable themselves?
As a share price slides down, the yield will rise, seemingly making the stock look more attractive, yet that could be a trap. The dividend can also be reduced or cut off completely if they can't afford to pay it due to declining business.
That's why we stress buying quality stocks first and foremost. Those usually are the large-cap companies that have tried and tested business models. The more reliable they are, the more predictable their possible future earnings can become. That's what we need for successful long-term investing.
Here are three blue-chip stocks that offer yields greater than 5%. They could be part of a strong foundation of investment returns in your portfolio over the next 5 – 10 years.
1) Telstra Corporation Ltd (ASX: TLS)
The famous telecom giant has the biggest broadband and mobile phone subscriber network in Australia with the next largest competitor a very far second. It realises that Asia is the region it must expand into, with its big populations and growing economies. It plans to create working partnerships with established regional telecom companies and leap-frog to market leadership.
It will also be gaining leasing revenue from the national broadband network as it is rolled out across Australia. That will help fund future growth and acquisitions. It now has a yield of 5.2% fully franked.
2) Sydney Airport Holdings Ltd (ASX: SYD)
This company owns and operates the Sydney Airport. Its yield is 5.4% unfranked. In the past 10 years it has a decent track record of raising dividends, so that could be a good sign for future dividend income.
Although it could be a stable infrastructure investment for the long-term, I would prefer Telstra for its growth opportunities and much larger regional footprint.
3) Stockland Corporation Ltd (ASX: SGP)
Stockland is a well-known housing and commercial property construction company. With the housing market growing so strongly thanks to record low interest rates, demand for unit and detached housing is high. There is also an undersupply of housing relative to Australia's general population growth, so it could take a number of years before that excess demand is met.
In the meantime, it has a 5.9% yield unfranked to offer investors. I like the growth profile, but it is a cyclical stock, so there will be ups and downs along with the property market.
