National Australia Bank Ltd (ASX: NAB) shares are currently trading at a dividend yield of 5.9% – fully franked, no less!
Franking credits afford eligible shareholders a discount on their dividend income when they report their earnings at the Australian Tax Office come June 30.
If we include those credits, NAB's implied dividend yield is an impressive 8.4%.
Given interest rates are currently at a record low of 2%, term deposits are offering a comparable yield of between 2.65% and 3% per year.
Clearly, 8.4% is a far greater return than 2.65%. Therefore, it's no wonder why so many Australians are turning to the sharemarket to generate a respectable yield on their savings.
As I'm sure you'll know however, investing in the sharemarket is much riskier than keeping your money in a government-guaranteed term deposit.
Indeed, despite its title as Australia's third largest bank by market capitalisation, NAB shares are not immune from sharemarket volatility – or worse, permanent loss of your investment capital.
For successful sharemarket investing, regardless of whether the focus is on dividend income or capital gains, it's imperative to focus first and foremost on the health of the business behind the stock code.
As I wrote here, NAB shares are not a good buy today.
However if you, like me, want to get some healthy exposure to the sharemarket, below, I've listed two dividend stocks I would buy today.
- Woolworths Limited (ASX: WOW) is a stock I recently added to my portfolio. Like NAB, Woolworths is a renowned dividend stock with one minor exception: its shares are cheap. As Motley Fool analyst, Mike King, recently wrote, "Woolworths shares are the cheapest they've ever been." Currently yielding a dividend of 4.9% fully franked (7% grossed-up), Woolworths looks a worthy investment for income.
- Coca-Cola Amatil Ltd (ASX: CCL) is Australia's distributor of Coca-Cola and Beam-branded products. It also distributes Coca-Cola to neighbouring countries such as Indonesia and New Zealand. CCA shares seemingly missed the ASX's bull market run over the past five years having fallen 7%, compared to a 28% return from the S&P/ASX 200 (ASX: XJO) (Index: ^AXJO). However, a new product launch, investment in Indonesia and a cost-cutting drive appears to be gaining support with the sharemarket. CCA's partially franked dividend yield of 4.2% becomes 5.5% when grossed up for franking credits.
Should you buy Woolworths and CCA shares today?
I already own shares in CCA and Woolworths, both of which I purchased at a price not far below today's levels. As long as your portfolio is well diversified, I think each company is a worthy addition to income-seeking investors' portfolios.
