Official Australian interest rates are stuck at just 2%, and stock market analysts know exactly what the growing army of Self-Managed Superannuation Funds (SMSFs) want: dividend yield.
According to the Fairfax Press, analysts at Credit Suisse have identified 15 companies within the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which could make decent dividend stocks for the 1.04 million people using SMSFs.
Macquarie Group Ltd (ASX: MQG), QBE Insurance Group Ltd (ASX: QBE), Flight Centre Travel Group Ltd (ASX: FLT), Challenger Ltd (ASX: CGF), and Boral Limited (ASX: BLD), ranked among Credit Suisse's top 15 stocks.
The investment bank used a combination of 12-month gross dividend yield, forecast dividend growth, and free cash flow coverage of dividend payments to identify the stocks.
So what makes a good dividend stock for retirees?
Personally, I think it all boils down to reliability. In order to be reliable, the payments need to be consistent and sustainable.
It's also important to focus on these metrics over the ultra-long term (10 years or more) because most SMSF investors in retirement will likely be relying upon dividend income for many years into the future. This is especially true now, with interest rates at record lows.
Reliable dividend payouts are common amongst infrastructure stocks, such as Sydney Airport Holdings Ltd (ASX: SYD) and APA Group (ASX: APA), whose assets afford them a wide and durable economic moat.
Those selling non-discretionary items, such as Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW), can also make good dividend stocks.
In addition, so long as the portfolio is very well diversified, holding some cyclical dividend stocks such as Macquarie Group could also yield healthy returns.
If you are inclined to hold a number of 'cyclical' stocks for income, however, I suggest holding some other 'counter-cyclical' or 'defensive' dividend stocks to smooth out your returns over the economic cycle.
