Investors should use the market correction to load up on quality dividend-paying stocks as the economists from Australia and New Zealand Banking Group (ASX: ANZ) are predicting that interest rates will be cut not once – but twice in the New Year.
This will leave Australia's official cash rate at a miserly 1.5% and ANZ believes the Reserve Bank of Australia (RBA) is likely to lower the rates in February and May 2016, according to a report in the Australian Financial Review.
The RBA will have little choice but to take this drastic action as the bounce in consumer confidence from the change in Prime Ministers and the lower Australian dollar will not be enough to lower the unemployment rate from its current level of 6.2%, noted ANZ.
If anything, unemployment could actually rise because of slowing growth in China and the lack of growth in non-mining investments.
To make matters worse, the federal government's ability to stimulate the economy is constrained by a tight budget and a cooling housing market will act as another headwind for our economy, although falling house prices will give the RBA another reason to act.
If you believe we can avoid slipping into a recession as I do, this means you should be snapping up high-yielding stocks with defensive businesses.
Healthcare is one that readily comes to mind and I think stocks like fertility treatment specialists Monash IVF Group Ltd (ASX: MVF) represent a good option given that there's a lot of bad news already priced into the stock.
Monash IVF has slumped close to 30% over the past year to $1.23 as demand for in-vitro fertilisation has been weaker than expected.
However, I believe growth in the IVF market will return to trend, but Monash IVF's share price has yet to reflect this. Even if the recovery takes a little longer than I anticipate, investors are well compensated while they wait, with the stock forecast to yield close to 10% in 2015-16 – if you include franking credits.
Another in the sector that's worth considering is Sigma Pharmaceutical Limited (ASX: SIP) with its forecast yield of over 8% with franking credits.
While the pharmaceutical products supplier and retailer may not have an exciting double-digit profit growth story to entice investors with, I believe its generous dividend payout is sustainable.
In financials, I see value in the Big Four banks but I acknowledge the uncertainty over the sustainability of their dividends over the medium-term.
If you are not sure about perennial favourites like Commonwealth Bank of Australia (ASX: CBA) and friends, you might like to consider wealth manager AMP Limited (ASX: AMP) with its grossed-up yield of nearly 8%.
AMP posted a solid half-year result in August and I think the stock is looking cheap as it is trading on a 2015-16 price-earnings (P/E) multiple that's under 14x. That's below its 14-20x P/E range over the past five years.
While AMP also has to meet higher capital adequacy ratios imposed by the banking regulator on mortgage lenders, it isn't as cash constrained as the Big Four.
