5 small stocks with yields above 5.5%

If you want dividends then it's time to take a look at five lesser known stocks with big dividend yields.

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The key when selecting income stocks is to accurately identify companies with the ability to maintain (and ideally grow) their dividend payout. Full franking of dividends is, for most investors, also an important attribute.

There is no point buying into a stock with a very high historic yield if it has no resemblance to the forecast yield.

Look forward, not backwards

Here are five stocks that according to Morningstar Research are trading on financial year (FY) 2016 dividend yields above 5.5%. Importantly, consensus expectations are for the following stocks to raise their respective dividends over the FY 2015 to FY 2016 period.

Pact Group Holdings Ltd (ASX: PGH) is trading on a forecast yield of 5.5%. Analyst consensus is for dividends totalling 21 cents per share (cps) to be paid in FY 2016. The share price is currently at $3.83.

GUD Holdings Limited (ASX: GUD) is trading on a forecast yield of 6.8%. Dividends totalling 44.9 cps are forecast. The share price is at $6.62.

Hills Ltd (ASX: HIL) is expected to yield 6.4%. An 8.5 cps dividend is forecast. The share price is trading at $1.32.

GWA Group Ltd (ASX: GWA) is on a yield of 6.2%. 16 cps in dividends are expected. The share price is $2.56.

Retail Food Group Limited (ASX: RFG) is trading on a forecast yield of 5.8%. Dividends totalling 27.1 cps are expected. The share price last traded at $4.67.

Cash is King in a Crisis

With the S&P/ASX 200 (INDEXASX: XJO) experiencing a significant rise in volatility over the past month, defensive dividend-paying stocks are likely to find support amongst risk-averse investors. This is one reason a portfolio packed with high-yielding stocks can be a clever move. Another reason an income focussed portfolio makes sense is because it allows an investor to receive a steady stream of cash – this cash become more valuable when bargains present themselves.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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