While inflation currently stands at a rather modest 1.5%, the effects of a loose monetary policy on the price level can be significant. Certainly, demand for goods and services may be coming under pressure owing to an uncertain outlook for the Aussie economy. However, history tells us that when rates move lower, the cost of things tends to go in the opposite direction. And, with there being a time lag of around nine months for each interest rate movement to have an impact, the current inflation figure of 1.5% is unlikely to take full account of this year's cut in interest rates.
For investors with large cash balances, the combination of falling rates and the potential for rising inflation means that a negative real return is a very real possibility. As such, stocks paying high dividends and that have the scope to increase them by more than inflation could prove to be a very useful ally in 2016 and beyond.
Two companies that appear to fit the bill are National Australia Bank Ltd. (ASX: NAB) and Macquarie Group Ltd (ASX: MQG). Clearly, both companies are likely to benefit from a falling interest rate, with NAB, for example, set to see demand for new loans remain buoyant and also benefit from a potentially lower default rate as it becomes less costly for individuals and businesses to service a loan.
Meanwhile, wealth management company, Macquarie, should benefit from a positive impact of a loose monetary policy on the ASX, with the company's fees likely to rise if the ASX produces a strong performance over the medium term.
With regard to their income potential, NAB currently surpasses the ASX's 4.5% yield with its yield standing at a fully franked 5.9%. Looking ahead, dividends are expected to rise by just 0.8% per annum during the next two years, which is at least partly a result of the more onerous regulations regarding capital ratios that are being required of the banks. And, while dividend growth is set to be outstripped by inflation in the short run, NAB has an excellent track record of dividend growth, with them rising at an annualised rate of 6.3% during the last five years, which bodes well for the longer term outlook.
Macquarie Group, on the other hand, has a lower yield than the ASX, but is expected to bolster its shareholder payouts at a brisk pace. As such, the company's 4.3% yield should rise rapidly, owing to 9% per annum dividend growth that is being forecast by the market over the next two years. In fact, Macquarie is expected to yield as much as 4.8% in financial year 2017.
Furthermore, both stocks trade at a discount to the ASX. NAB has a price to earnings (P/E) ratio of 12.9, while Macquarie's rating is 15.9; both of which are below the ASX's P/E ratio of 16.2. As a consequence, they appear to offer respectable value for money alongside excellent yields and upbeat long term prospects as they react to a monetary policy that is set to only become looser in 2015 and beyond.
