For income-seeking investors, times are tough. For starters, interest rates are heading south. At the present time they may stand at 2% but, realistically, they seem likely to move considerably lower as the Aussie economy continues to disappoint. In fact, with the economy being rumoured to be on the brink of a recession, an interest rate of 2% could quickly be slashed as per the US, UK and Europe during the global financial crisis.
Furthermore, the dividends from a number of ASX stocks have come under substantial pressure. Commodity price falls and the deteriorating economy have meant that dividends from resources companies have been slashed and, with their lack of investment and cost cuts likely to have a knock-on effect on the economy, things could get worse before they get better for dividend-seekers.
However, a number of ASX-listed stocks offer the chance to earn superb yields and, with the index having fallen by 6% already this year, valuations indicate that there are sufficient margins of safety on offer to merit purchase right now.
For example, Wesfarmers Ltd (ASX: WES) currently yields 5.2%, which is higher than the ASX's yield of 4.8%. In addition, and despite a slowdown in the supermarket sector, Wesfarmers is forecast to increase its net profit at an annualised rate of 6.8% during the next two years. This means that its dividends appear to be very sustainable, with them due to be covered 1.2 times in the financial year 2017.
In addition, Wesfarmers has an excellent track record of increasing dividends per share, with them having risen by 12.2% per annum during the last five years. This shows that the company is likely to be shareholder friendly in future and, with it being a conglomerate, may offer greater stability and resilience than many of its index peers.
Similarly, wealth management company, AMP Limited (ASX: AMP), also has huge income appeal, with its yield of 4.7% set to rise over the next couple of years. That's partly because the company's bottom line is forecast to soar by 20% per annum during the next two years, thereby allowing dividends to rise. But, it is also because AMP has a rather modest payout ratio of 47%, thereby allowing dividends to rise at a faster pace than earnings.
As a result, AMP is expected to yield 5.4% in financial year 2016. And, looking further ahead, a fall in interest rates has the potential to stimulate the ASX, thereby boosting AMP's fee income over the medium term.
Meanwhile, Super Retail Group Ltd (ASX: SUL), also yields 4.7%. Investors may, of course, be somewhat concerned regarding the company's ability to make dividend payments since, with the Aussie economy performing less well than hoped for, consumer sentiment may deteriorate in the coming months.
However, with Super Retail set to record an annualised rise in earnings of 15.5% during the next two years, its dividends are forecast to rise by around half that during the same period. This puts Super Retail on a forward yield of 5.2% and, with dividends being covered 1.6 times by profit, they appear to be highly sustainable even if the company's growth rate comes under pressure.
