As logical as it may seem, now probably isn't the best time to transition your hard-earned investment dollars from bank term deposits into bank shares.
Indeed as the economy slows you can bet the record profit growth at each of the big four banks will come under pressure. Falling interest rates are a sign of a weakening economy, not one which is firing on all cylinders.
Therefore, whilst shares of National Australia Bank Ltd (ASX: NAB) may have a huge dividend yield and an excellent track record when it comes to cash distributions, the risk of capital loss is very real. Especially at these elevated prices.
Right now, income investors should focus on companies with defensive earnings, competitive advantages (meaning they pick the price of their products), good valuations and reputable track records.
2 stocks better than National Australia Bank
With those characteristics in mind, here are two stocks I've recently snapped-up for a reliable income stream throughout the entire economic cycle.
- Coca-Cola Amatil Ltd (ASX: CCL) bottles and distributes one of the world's most renowned brands under exclusive licence from The Coca-Cola Company. It also holds the rights to Beam branded products. After suffering two years of share price sell-offs in 2013 and 2014, Coca-Cola is now implementing a turnaround strategy which could make its current price look cheap in hindsight. It's tipped to pay a 3.88% dividend, partially franked, in the next year.
- Woolworths Limited (ASX: WOW) is a name familiar to all Australians. Despite its standing as one of our country's leading supermarket operators the stock has been sold down in the last year as investors grow concerned over earnings growth amid fierce competition from rivals. However, at these prices, Woolworths looks to be a much better investment for dividends, than each of the big banks – it has increased its dividend every year for the past decade. Although growth may be moderate in years ahead, analysts continue to forecast a jump in its payout in 2015 – equivalent to a yield of 4.75% fully franked.
An even better buy than Woolworths…
I recently bought Woolworths shares for my family's portfolio for both its income potential and the relative safety received only from holding one of the country's most powerful brands. I also hold Coca-Cola Amatil warrants (see my disclosure, below).
