Investors buying into the latest stock market rally need to remain aware of factors which are driving the positive sentiment.
Firstly, economic news out of the US over the past few days has been weak. Under normal circumstances that would be bad. However, given the unusual situation of artificially low interest rates the market "likes" bad news as it means the US Federal Reserve will hold off on raising interest rates and hence the "party" continues to roll on!
Secondly, there is talk of commodity prices having reached the bottom of the cycle and oil prices are enjoying a bounce too, which is helping to send the resource and energy sectors higher.
The above factors are helping to drive stocks up in the near term, however, ultimately markets will be driven by earnings growth which for many companies remains allusive.
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With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) having only gained around 1% per annum over the past decade (excluding dividends) investors reliant on the market to support their living expenses know just how important dividends are to the overall equation.
Given these circumstances, the "yield trade" will likely roll on. Defensive businesses with maintainable dividend yield above the interest rate offered by bank deposits will remain in vogue which will of course see Telstra Corporation Ltd (ASX: TLS) remaining a cornerstone holding in many portfolios.
Another stock which could be a winner for an income-focussed portfolio is gambling entertainment group Tabcorp Holdings Limited (ASX: TAH).
For the year ending June 30, revenues increased 6% to $2.15 billion and underlying profit jumped 14.7% to $171.3 million.
Tabcorp's business can be broken down into three operating units namely, Wagering and Media, Gaming Services and Keno. For the 2015 financial year, the Wagering and Media unit was the standout performer with revenues increasing 6.9% and earnings before interest, tax, depreciation and amortisation (EBITDA) gaining 7.2%
The remaining two divisions, while much smaller contributors to group earnings, lagged somewhat. Gaming Services reported a 1.5% increase in revenues and a 0.9% increase in EBITDA; while Keno reported a 2.4% fall in revenues and a 8% decline in EBITDA.
In the current financial year, analyst consensus forecasts (according to data provided by Morningstar) are for Tabcorp to produce earnings per share of 23 cents per share (cps) and dividends of 24.5 cps.
Based on the current share price of $4.84 this implies a price-to-earnings ratio and fully franked dividend yield of 21x and 5.1% respectively.
