A major cause of concern for many retirees is the low level of interest rates. That's because cash balances which had previously yielded in excess of 4% for many years are now generating only a slim real-return. And, for those investors who are not yet retired, the outlook for the commodity and wider resources sector indicates that low-interest rates may be here to stay for the medium to long term, as the RBA seeks to stimulate a flagging economy.
As such, dividend stocks are taking on an increasingly important role within Foolish portfolios and, looking ahead, their significance is set to increase in 2016 and beyond.
Historically, the banking sector has appealed as a source of dividends. However, with the economy enduring a slowdown and the major banks being required to hold additional capital, there is concern that their status as 'go-to' income stocks may be at an end. Australia and New Zealand Banking Group (ASX: ANZ), though, goes some way to proving this idea wrong, with it currently yielding a fully franked 6.7% after its share price has fallen by 17% in the last year.
Looking ahead, ANZ's dividend appears to be highly sustainable since it is covered 1.4 times by profit and, with it being forecast to rise by 2.1% per annum during the next two years, it is likely to deliver a real-terms increase in income for its investors, too. Moreover, with ANZ being focused on managing its capital and generating efficiencies within its core asset base via a super regional strategy which aims to increase its exposure to a fast-growing Asian economy, its price to earnings (P/E) ratio of 10.2 holds great appeal.
Similarly, Transurban Group's (ASX: TCL) yield of 4.1% is also highly enticing and, while it is lower than the ASX's yield of 4.6%, Transurban has an excellent track record of having increased shareholder payouts at an annualised rate of 11% during the last five years.
One of the major appeals of Transurban is its defensive growth prospects, with the company offering pricing improvements and efficiency gains across its portfolio of assets as well as a much more consistent earnings stream than many of its index peers. Additionally, Transurban is set to benefit from the increased congestion in major cities, with its toll roads likely to increase in usage and popularity over the medium to long term. And, with it having a beta of 0.9, it also offers a less volatile shareholder experience than the wider index, too.
Meanwhile, Scentre Group Ltd (ASX: SCG) still offers excellent long-term dividend growth even though the outlook for the consumer sector is rather weak. The owner of the Westfield-branded shopping centres in Australia and New Zealand has enjoyed two decades of almost full occupancy, which indicates that in the coming years it is likely to offer a degree of stability in what could prove to be a challenging economic backdrop.
With its yield of 5% expected to grow by 2.7% per annum during the next two years, it offers impressive dividend potential while its shares continue to be reasonably priced on a price to book value (P/B) ratio of 1.36. New developments are, according to its latest results, on target to improve its financial performance in the coming years, which makes now a good time to buy a slice of it alongside ANZ and Transurban for long term income returns.
