The 'Search for Yield' continues…
With official interest rates at just 2%, sharemarket investors are still piling into high-yielding dividend stocks like Telstra Corporation Ltd (ASX:TLS), National Australia Bank Ltd (ASX:NAB) and Westpac Banking Corp (ASX:WBC).
However, as seasoned investors know if you overpay for a stock, any fall in the stock's price could quickly wipe out the perceived benefit of buying it in the first place.
As always, it's important to exercise patience and diligence when sizing up prospective dividend stocks.
Telstra Corporation
As I showed here, Telstra has a lot to offer investors. Not only is its 4.7% fully franked dividend very reliable, its international expansion into Asia bodes well for modest capital gains over the long term. At roughly $6.30 per share, however, Telstra shares look to be trading above their theoretical, or intrinsic value. Personally, I'd rate Telstra as a hold at today's prices.
National Australia Bank
After posting big falls in price during April and May on news of its record-breaking rights issue to buffer its capital position, NAB shares have rallied back above $34. Despite the likelihood of an exit from the U.K and USA, however, NAB's current share price valuation leaves a lot to be desired. Indeed, investors must be keying in strong growth to support its current share price.
Westpac Banking Corp
Like NAB, Westpac also recently sought to raise capital from shareholders. Whilst it raised just $2 billion — versus NAB's $5.5 billion — the issuing of capital could be indicative of the future which lies before Australia's second largest bank. Indeed, the Australian banking sector is likely to be characterised by higher capital requirements (reducing profitability) and, as CEO Brian Hartzer put it, "intense competition." It is offering a 5.5% fully franked dividend yield.
