When picking dividend stocks, it's imperative to focus on the future of the company, not only its current yield.
Just take a look at Australia's third largest iron ore miner, Fortescue Metals Group Limited (ASX: FMG), which currently trades on a trailing fully franked dividend yield of 9.15%.
Grossed-up for franking credits, its dividend yield is an unbelievable 13.1%!
Looking just one year ahead however, I suspect its dividend will either be cut by more than 50%, or entirely – in order to pay down its enormous debt pile.
The point here is to focus firstly on the underlying business, its valuation and future prospects, then its dividend yield.
3 dividend stocks I'd buy with $50,000
- Coca-Cola Amatil Ltd (ASX: CCL) is tipped to pay a 4.2% partially franked dividend in the next year. As Australia's exclusive distributor of Beam and Coca-Cola products, CCA has a distinct competitive advantage which is an important characteristic of most successful long-term investments. At today's price of $9.70, it appears to be a good buy to hold income stock.
- G8 Education Ltd (ASX: GEM) is our largest childcare centre owner and operator, having pursued an acquisitive growth strategy over the past five years. Whilst its share price appears to have lost some steam over the past six months, the lower price has pushed up its forecast dividend yield to over 4% fully franked. At today's prices it's a firm long-term buy and hold.
- Ardent Leisure Group (ASX: AAD) is a diversified leisure and entertainment business, owning popular theme parks such as Dreamworld and White Water World, Goodlife Health Clubs, AMF and Kingpin Bowling and, in the USA, Main Event – a rapidly expanding all-in-one entertainment business. Whilst Ardent's corporate structure is complex there is a lot to like about the company, including a 5% unfranked dividend, good valuation and sound long-term growth prospects.
