Thanks to interest rates being stuck at just 2.5% and expectations of the cash rate remaining where it is when the Reserve Bank meets on Tuesday afternoon, demand for big dividend stocks is showing no sign of easing off.
With tax effective franking credits and the chance of capital gains, it's little wonder why so many investors are dumping their term deposits in favour of blue chip stocks such as Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS).
They along with many other stocks in S&P/ASX 200 (INDEXASX: XJO), are now climbing to multi-year share price highs as a result.
Telstra recently released a great full-year report, announcing profits in FY14 had climbed 14.6% year-on-year and its board declared a final dividend of 15 cents per share. Taking the full-year payout to a whopping 29.5 cents and placing the stock on grossed-up dividend yield of 7.5%. Try finding that in a savings account!
However, as every seasoned investor knows, there's more to making winning investments than just a dividend yield and Telstra's share price has risen over 83% in the past three years alone. For me this takes the $69 billion company out of the buy zone.
However thanks to its juicy dividend yield and management forecasting broadly flat EBITDA and income growth in FY15, I would elect to hold the stock through a market cycle, rather than sell it now. In the long term Telstra has a number of rapidly growing divisions such as International and Network Application Services.
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