Holding a diverse range of companies paying fully franked dividend yields has perhaps never been more important than it is today.
Local interest rates are stuck at a low of just 2 per cent, and have been since May this year, but look increasingly likely to be cut further by the Reserve Bank of Australia in the near future.
Why Interest Rates Are Set To Fall
Indeed, the Bank was already under considerable pressure to do so, mostly because of the volatile share market, a high unemployment rate, crumbling commodity prices and slowing growth in China.
Another key reason was added to that list on Thursday afternoon when Commonwealth Bank of Australia (ASX: CBA) announced it would increase interest rates on its variable home loans by 150 basis points (0.15%).
The bank followed the lead set by Westpac Banking Corp (ASX: WBC) (which increased rates by 200 basis points, or 0.2%) with National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) likely considering their next moves as well. You can read more about the rationale behind those rate hikes, here.
Of course, higher borrowing rates mean greater expenses for the millions of customers with mortgages to repay. That won't help the country's below-trend growth rate which could certainly justify another official rate cut from the RBA – especially considering growth in house prices is cooling down.
What That Means For Your
Lower interest rates are great for mortgage customers, but terrible for people relying on interest payments for their income. That's why it's so important to expose yourself to high-yield stocks – particularly of the fully franked nature – for potentially superior returns.
Indeed, there are plenty of businesses for you to consider outside of the Big Four banks. Currently, the banks' fellow blue-chip company, Telstra Corporation Ltd (ASX: TLS), appears reasonable for long-term investors and offers a compelling 5.7% fully franked dividend yield.
Another company I really like (indeed, it is one of the biggest positions in my personal portfolio) is receivables management group Collection House Limited (ASX: CLH). It offers decent growth potential, what I think is a very reasonable price tag and, to top it off, a 4.5% fully franked dividend yield.
Regardless of whether or not another interest rate cut does eventuate, you shouldn't expect the RBA to hike interest rates anytime soon, either. Interest rates are almost certain to remain low for the foreseeable future and buying companies like Telstra and Collection House could see you get through with very reasonable returns.
