Numerous studies have shown that, in the long run, dividends make up the majority of total returns. As such, they are a important consideration for all long term investors and that's especially the case at the present time.
That's because further interest rate cuts are likely so as to try and stimulate the Aussie economy. As a result, the interest on cash balances is set to become even more derisory and push more investors towards stocks with great yields and strong dividend growth prospects.
Therefore, now could be a great time to buy high yield stocks and, with that in mind, here are three of my favourite income stocks.
Telstra Corporation Ltd
Looking back at Telstra Corporation Ltd's (ASX: TLS) dividend history doesn't make it appeal as an income stock, with the telecoms company increasing dividends per share by a paltry 1% per annum during the last five years. However, with its pivot to Asia set to transform its top and bottom lines over the medium term, its current yield of 4.7% (fully franked) is set to grow.
In addition, Telstra offers defensive qualities, with it having a beta of just 0.5. This means that its shares should move by just 0.5% for every 1% change in the value of the ASX and, with Telstra forecast to increase dividends per share at an annualised rate of 3.7% over the next two years, sentiment in the stock looks set to improve.
BHP Billiton Limited
2015 is a time of major change for BHP Billiton Limited (ASX: BHP), with the spin-off of South32 set to add value for shareholders in the company. In fact, a split of the company's operations seems sensible and should allow it to generate greater efficiencies moving forward, thereby allowing it to reduce its cost curves further and cement its position as a dominant global mining play.
Furthermore, BHP currently yields a fully franked 4.7%, which is higher than the ASX's yield of 4.3%. In addition, dividends per share are forecast to rise by 12% per annum during the next two years, while BHP has a price to book (P/B) ratio of just 1.9.
Suncorp Group Ltd
Over the next two years, Suncorp Group Ltd (ASX: SUN) is forecast to increase dividends per share at an annualised rate of 13.7%. This puts the company's shares on a forward yield of 6.8% and, despite rising by 52% in the last five years, they still trade at a discount to the wider market and to the insurance sector.
For example, Suncorp has a price to earnings (P/E) ratio of 15.2, which is lower than the ASX's rating of 16.6 and even better value than the insurance sector's P/E ratio of 19.9. In addition, Suncorp has cost savings to come through this year, which could be the catalyst to help investor sentiment to improve moving forward.
