Many investors believe that buying dividend stocks lacks the thrill that comes with buying speculative stocks or those capable of greater growth. The truth is, buying high yielding stocks is actually a method that has been employed by some of the world's greatest investors in their journey to becoming mega-rich.
Warren Buffett, for instance, is a well known advocate for dividend-paying stocks. While his own Berkshire Hathaway company does not pay one itself, many of the companies in its portfolio make handsome distributions on a quarterly basis.
Here are just three examples of how dividends can benefit regular investors:
- Those approaching retirement will eventually lose the ability to gain income by working, but dividends can keep that cash stream flowing in.
- A younger investor can reinvest their dividends to continue growing their portfolio exponentially over the years.
- While interest rates are at 2.5%, some companies return more to shareholders in dividends alone, let alone the possibility of their share price increasing too.
But there is one problem…
Buying solid dividend stocks isn't as simple as it was just 12 months ago. The low interest rate environment has seen the share prices of the more traditional dividend-paying companies become heavily inflated, meaning they should not be bought today. As such, investors need to dig a little deeper to find real value.
To save you the trouble, I took it upon myself to do a little research and came up with these four stocks which still look appealing today…
- Super Retail Group Ltd (ASX: SUL) – Recent Price – $8.70; Gross yield – 5.8%
Super Retail Group, the parent of brands like Rebel and Supercheap Auto, is a standout in Australia's retail sector as one that has long-managed to avoid the strong headwinds being caused by the online sector. However, an earnings downgrade has seen shares drop considerably in price, giving long-term focused investors an opportunity to pounce. - Nick Scali Limited (ASX: NCK) – Recent Price – $2.95; Gross yield – 6.3%
With house sales increasing strongly, the furniture goods retailer has managed to grow sales and net profit consistently in recent years. In fact, earlier in the week it reported an 11% increase in sales for FY14 as well as a 16% rise in net profit after tax. - Silver Chef Limited (ASX: SIV) – Recent Price – $6.20; Gross yield – 6.5%
If you were looking for a small-cap with a solid dividend AND fantastic growth prospects, it'd be hard to look past Silver Chef. The business finance company looks to be well and truly back on track now after issuing a profit warning late last year, yet the shares remain more than 30% below their 52-week high, making now a great time to buy. - Westfield Corp (ASX: WFD) – Recent Price $7.39; Gross yield – 3.5% (estimated)
As a result of the controversial Westfield restructure, Westfield Corp now owns and operates all of Westfield's assets outside of Australia and New Zealand. While there is potential for growth around Europe and South America, the US and UK are its primary focuses currently, thus giving investors an excellent opportunity to gain exposure to their recovering economies.
Get the Motley Fool's #1 dividend pick for 2014-15 – FREE!
It is vital that investors remember that a solid dividend isn't everything. They also need to consider the price they're paying for the shares and the company's ability to continue growing well into the future.
