There's no denying how much Australians love their dividends.
And why wouldn't they? They provide an easy and regular source of cash, they often come with tax benefits attached, and they sure as hell beat the returns from 'risk-free' assets like term deposits or government bonds.
However, so intense has the love affair between investors and their dividend stocks become that they are all too often forgetting the importance of value. Too many are buying stocks simply for their attractive yields, completely ignoring the fact that they are paying far too much for the privilege of holding them.
Luckily, not all dividend-paying stocks have been caught up in this deadly trend. In fact, it seems like some incredible opportunities have been well and truly overlooked.
Surprisingly, one stock they seem to have missed is one of Australia's largest and most popular insurance companies. Considering Insurance Australia Group Ltd (ASX: IAG) offers a remarkable 9.2% grossed up dividend, how this stock was overlooked I'll never know. Not only does it offer an even more appealing dividend than more popular companies like Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC), it is also trading at a far more reasonable price. With a trailing P/E ratio of just 10.9x, I believe it is still quite underdone considering its ability to grow earnings strongly over the coming years.
Given its much smaller size and its exposure to Australia's retail sector, it is perhaps not so surprising that RCG Corporation Limited (ASX: RCG) has been overlooked. Investors have tended to shy away from the sector in fear of the rapidly rising online retail sector, but it seems they may be passing by somewhat of a gem. RCG, which owns The Athlete's Foot shoe store chain, has shown impressive growth recently and relies on superior customer service levels to maintain solid margins – a strategy which will be carried forward over the coming years. The small-cap stock offers an incredibly generous 7.7% fully franked dividend, which equates to a massive 11% grossed-up yield.
Unlike Insurance Australia Group and RCG Corporation, Coca-Cola Amatil Ltd (ASX: CCL) hasn't exactly been overlooked by the market, but rather sold down heavily with shares down more than 43% in the last 18 months. However, investors appear to be far too focused on the near-term issues facing the business and neglecting the company's long-term potential. Thanks to its strong balance sheet, Coca-Cola Amatil still managed to maintain a solid yield (albeit slightly lower than last year's). As it stands, it is expected to distribute 45.5 cents per share in 2015, giving it a grossed up yield of 6.8%.
The BEST dividend stock money can buy
