With interest rates falling, stock markets being volatile and the future uncertain, it seems to make sense to buy high quality dividend stocks. That's because they have the potential to provide an income stream so that their investors can take advantage of falling markets and also improve their total returns even when the market is enduring a turbulent patch.
A prime example of a top notch dividend stock is toll road and tunnel operator, Transurban Group (ASX: TCL). It may have yielded less than the ASX in the financial year just ended at 4.1% versus 4.9% for the index, but with its acquisitions set to aid profit growth over the next couple of years, its shareholder payouts are due to rise at a rapid rate. In fact, dividends per share are expected to increase from $0.40 last financial year to $0.44 in the current financial year, before rising further to $0.48 per share in financial year 2017.
This means that over the next two years, Transurban is expected to generate an income return for its investors of 9.7%. And, with it increasing dividends per share by 11% per annum during the last five years, Transurban appears to be very shareholder-friendly and focused on profit and dividend growth moving forward.
Meanwhile, falling interest rates could be a positive move for real estate company, Goodman Group (ASX: GMG). That's because loans may become less expensive and the property market may be stabilised even if the domestic economy endures further challenges ahead. And, with the RBA apparently being willing to risk a property bubble in favour of providing support to businesses and consumers across Australia, the medium term outlook for the business is rather upbeat.
As a result, Goodman Group is expected to post a rise in its earnings of 6.5% per annum during the next two years. This puts it on a forward price to earnings (P/E) ratio of 14.2, which is slightly lower than the ASX's P/E ratio of 14.7. And, with it having a forward yield of 4.2% from a dividend payout ratio of just 60%, there appears to be scope for strong income returns – especially if Goodman Group continues to increase dividends per share at an annualised rate of 5.5% as it has done over the last five years.
Another example of a top notch dividend stock is Coca-Cola Amatil Ltd (ASX: CCL). It may yield only slightly more than the ASX at the present time, with its yield being 5%, but with a turnaround plan that is beginning to have a positive impact on its financial performance, its income appeal looks set to increase over the medium term.
In fact, Coca-Cola Amatil is due to post a rise in its earnings of 4% in the current year, with cost cutting, greater efficiencies and expansion into faster growing markets across Asia set to provide a boost to its net profit. And, with dividends forecast to be covered 1.3 times by profit, shareholder payouts appear to be sustainable, while a beta of just 0.54 indicates that Coca-Cola Amatil could prove to be a relatively steady performer should the ASX continue its recent turbulence in the months and years ahead.
