Looking ahead to the next few years, one of the great challenges facing many Aussie investors is how to generate a decent income. Certainly, an interest rate of 2% may seem low, but ask anyone across Europe (including the UK) and the US if they think 2% is low, and their answer is likely to be 'no'. As such, and while the RBA's dovish view on monetary policy may kick-start the wider economy, the reality is that interest rates could fall further.
However, it is not too late to do something about it. One possible solution is to buy stocks that offer a mix of high yields, growing dividends and a sustainable payout.
For example, packaging company, Amcor Limited (ASX: AMC), may not be the highest yielding stock on the ASX, with its dividend yield currently being below that of the ASX at 3.5% versus 4.6% for the wider index. However, with its payout ratio standing at 55% last year, it provides management with scope to increase dividends at a rapid rate over the next couple of years. In fact, Amcor's dividends are forecast to increase at an annualised rate of 11.6% in the next two years, and this puts the company's shares on a forward yield of 3.9%.
Furthermore, Amcor has excellent growth potential, with its considerable exposure outside of Australia set to help it to achieve a relatively high growth rate and also benefit from a weakening Aussie dollar.
However, when it comes to rapid dividend growth, wealth management company, AMP Limited (ASX: AMP), is even more appealing, with its dividends forecast to rise from $0.14 per share last year to as much as $0.32 per share next year. That's growth of 129% in just two years and means that AMP is forecast to yield around 5.1% in 2016. Despite such rapid growth, though, AMP is expected to have a sensible level of headroom when making its shareholder payouts, with its dividend coverage ratio due to be 1.3 in financial year 2016.
In addition, AMP also offers a wide margin of safety, with it having a price to earnings growth (PEG) ratio of just 0.93, which compares favourably to the ASX's PEG ratio of 1.24. And, on this front, National Australia Bank Ltd. (ASX: NAB) also has great appeal, with its PEG ratio standing at just 1.06, versus 1.67 for the wider banking sector.
Of course, a falling interest rate could be good news for NAB, since it may increase demand for new loans as well as reducing the default rate on existing loans. And, with NAB having a yield of 5.9%, investor sentiment in the stock could improve even though dividends are expected to rise by just 0.8% per annum during the next two years. As with AMP, though, NAB has a relatively high dividend coverage ratio of 1.3, which means that there may be scope for dividend rises over the medium term.
