While the ASX has soared to a seven-year high, Australia's premier index still yields a very appealing 4.2%. That's massively higher than the current level of interest rates, which makes buying an index tracker all the more appealing. In fact, with the potential for capital returns in the long run, in addition to a great yield, it's a wonder why some Aussie investors have large cash balances right now.
However, there are a number of stocks that currently trump the ASX's yield. And, while their risks may be considerably higher than holding cash in a savings account, they offer great value for money and a bright long term future. Here are three prime examples that could make a real difference to your income in 2015 and beyond.
Rio Tinto Limited
Over the last five years, Rio Tinto Limited (ASX: RIO) has increased dividends per share at an annualised rate of 39.2%. That's a stunning rate of growth and is a key reason why its shares currently yield 4.6% (fully franked). Certainly, the company's earnings are on the decline as a weaker iron ore price hurts Rio Tinto's top and bottom lines, but with the company having a payout ratio of just 42% last year, its dividends are set to rise moving forward despite challenges in its financial performance.
In fact, Rio Tinto is forecast to increase dividends per share at an annualised rate of 7.5% during the next two years. That's much higher than inflation is likely to be during the period, and means that the mining company could be yielding as much as 5.1% in financial year 2016.
Macquarie Group Ltd
While Macquarie Group Ltd (ASX: MQG) currently yields 3.7% (partially franked), it could become a superb income play over the next couple of years. That's because it is set to increase dividends per share in the current year by 12.4%, as improving profitability and a rising ASX look set to boost the company's bottom line by 16.6% per annum over the next two years.
This puts Macquarie on a forward yield of 4.2% and, with dividends being covered 1.4 times by profit, there is scope for further increases over the medium term. Furthermore, Macquarie also has a price to earnings growth (PEG) ratio of 1.13 versus 2.21 for the ASX and, while its share price could be volatile in the short run due to its results release in early May, its beta of 0.9 indicates that it could be a better defensive stock than many investors realise.
Wesfarmers Ltd
Although the Aussie supermarket sector is experiencing a challenging period, when it comes to dividend track records, Wesfarmers Ltd (ASX: WES) takes some beating. That's because the conglomerate has been able to increase dividends per share by 12.5% per annum during the last five years and, when combined with a share price that has fallen by almost 4% in the last year, means that the company now yields 4.5% (fully franked).
Wesfarmers is also expected to recommence dividend growth next year after the current year's pause. As such, it could be yielding as much as 5.2% in financial year 2016, with bottom line growth of 9.8% per annum during the next two years also being pencilled in. This shows that, while margins may be squeezed somewhat, Wesfarmers' improving efficiency and dominant position in multiple markets looks set to make its future performance relatively upbeat – especially since it has a price to sales (P/S) ratio of just 0.82.
So, with Rio Tinto, Macquarie and Wesfarmers forecast to yield a combined 4.8% next year, now could be a great time to add them to your portfolio. Of course, finding the best stocks for the long term is a tough ask – especially when work and other commitments limit the amount of time you can spend trawling through the index for them.
