For many self-managed super funds and retirees, the last three years have been a story of pouring dollars into income stocks. This theme is expected to continue for at least the next 12 months as the RBA moves to lower the official interest rate below its all-time low of 2.25% currently.
So, with the big four banks and Telstra Corporation Ltd (ASX: TLS) now yielding between 4.5% and 5.5%, from 6% to 8% a couple of years ago, the wise approach could well be to look for companies that offer a combination of growth and income.
Three companies that offer a solid dividend yield and reasonable amount of earnings growth in the year ahead are G8 Education Ltd (ASX: GEM), Blackmores Limited (ASX: BKL) and Sigma Pharmaceutical Limited (ASX: SIP).
G8's shares have pulled back nearly 40% from their high of $5.63 to today's price of $3.22, bumping the trailing yield up to 4.2% and the forecast forward yield up to nearly 7.5% this year and 9% next year! G8's also growing strongly with net profit nearly doubling last financial year and expected to jump another 70% this year.
Blackmores meanwhile is having some success in its expansion into China, with analysts expecting a 50% jump in earnings per share this financial year and a similar jump in dividend payout to bump the yield up to nearly 4% fully franked.
Finally, pharmaceutical wholesaler Sigma Pharmaceutical is forecast to grow earnings by over 30% this financial year, boosted by increased sales to a growing network of discount chemists and solid demand for white-label drugs. At the current price, shareholders can expect a yield of 6% fully franked, increasing to nearly 7% in 2016.
Are these companies too good to be true? Investors need to remember that all companies come with some level of risk and these three wouldn't offer such a great combination of yield and earnings growth if there wasn't the prospect of it not eventuating.
