This may surprise you but there's a way to get a dividend yield of up to 35% without investing in distressed or risky small cap stocks.
You can reap the mouth-watering dividends by rotating your investments through the Big Four banks as they make their payouts over the next year or so.
The idea is that you would buy the bank stock with the closest ex-div date, sell it after you collect the dividend and buy into the next bank that is going ex-div.
If timed correctly, you can pick up eight dividend payments by August 2016 as the Big Banks will trade without their dividend entitlements at different times.
History has shown that this strategy, otherwise known as dividend stripping, can be pretty rewarding and I believe this time will be no exception.
The first to go ex-div is Westpac Banking Corp (ASX: WBC) after it surprised the market by releasing its full year results three weeks early and announced a $3.5 billion equity raising to bolster its balance sheet.
Westpac will trade without its 94 cent final dividend entitlement on November 11 and will probably pay an interim dividend of 91 cents a share (if you account for the share dilution from the equity raising) in May next year.
The next bank to go ex-div is probably National Australia Bank Ltd. (ASX: NAB) with an expected final dividend of 99 cents a share followed by a similar interim payout next year.
Australia and New Zealand Banking Group (ASX: ANZ) will be the third to go ex-div next month with a 96 cent a share distribution and a 87 cents interim dividend in May 2016.
The three Big Banks have a September end financial year, while Commonwealth Bank of Australia (ASX: CBA) closes its books on June 30 and pays a dividend in February and August.
CBA's interim dividend is estimated at $2 a share and its final dividend at $2.26.
If you invested $10,000 and rotated your investment to capture all the dividends listed above, you will get checks from the Big Four that will add up to around $2,446.
This equates to a yield of nearly 25%, or 35% if you qualify for franking credits, bearing in mind you need to hold the stock for 47 days to qualify for franking (it's actually 45 but you can't count the day you buy and sell the stock).
Of course that's all theoretical as it makes a big assumption that the share prices of the banks remain roughly where they are trading today, and stocks have this bothersome habit of fluctuating.
What's more, stocks typically fall by their dividend amounts when they trade without their dividend entitlements.
However, getting a juiced-up yield is definitely not outside the realms of probability. Morgans found that the share prices of the Big Banks usually recover their dividend amounts within three to four weeks.
Further, I believe the downside risk to the share prices of the Big Banks is relatively limited given that bank valuations are trading at or below their long-run averages.
This of course assumes Australia doesn't slip into a recession and barring the collapse of the residential housing market.
The other risk of course is the prospect of more dilutive capital raisings by the Big Banks due to stricter capital adequacy regulations, but investors are still likely to earn a very handsome yield if bank stocks remain relatively stable over the next year even if getting 30% plus seems improbable because of the holding period to qualify for franking.
But if the sector remains reasonably buoyant, getting 20% plus may not be that improbable.
On the other hand, those that aren't keen on dividend stripping will still find the yields on offer attractive as Westpac, NAB and ANZ Bank will each pay three dividends over the next 13 months.
Morgans noted that this equates to a yield of between 13% and 15% if franking credits are included. That's a pretty tempting return for a "buy and hold" strategy.
