Income stocks have always been particularly popular with Australian investors over recent decades thanks in part to the tax benefits associated with franking credits.
At a time when interest rates are at record lows, the hunt for high quality, fully franked dividend stocks is still strong, especially for SMSF investors and retirees who are struggling to generate a decent return from cash investments.
Unfortunately for some investors, the blue-chip stocks usually associated with good dividends have been punished heavily in recent times. The big four banks, Woolworths Limited (ASX: WOW) and Telstra Corporation Ltd (ASX: TLS) have all seen their share prices come under significant pressure and this has meant many investors may be sitting on a capital loss despite picking up some healthy dividends along the way.
Although the share prices of these companies may recover in the future, for many of them the short-term outlook is still unclear. As a result, I think investors should consider other shares with better growth prospects and solid dividend yields. I would also rule out buying shares in companies like BHP Billiton Limited (ASX: BHP) for their historical dividend yields alone, as many companies in the resources and energy sectors will struggle to maintain their dividend payouts with many commodities trading at multi-year lows.
Instead, here are three stocks that are forecast to significantly increase their dividends over the next two years:
1. Macquarie Group Ltd (ASX: MQG) – Macquarie is forecast to increase its dividend by around 10% over each of the next two years and based on the current share price of $71.58 will provide investors a yield of 5.2% and 5.6%. Because Macquarie has significant exposure to overseas markets, its dividends are generally only partially franked. Although recent market volatility has seen the share price fall significantly, this should be seen as a good long-term buying opportunity for investors looking for growth and income. The shares trade at a discount to the broader market, trading at just 12x forecast FY16 earnings.
2. Tassal Group Limited (ASX: TGR) – The share price of the Tasmanian salmon farmer has performed exceptionally well over the past six months and only last week traded above $5 per share. Despite the recent surge in the share price, the shares still appear relatively well priced trading on 14x forecast FY16 earnings. The analysts at Morningstar are also forecasting a 2 cent per share rise in the dividend over the next two financial years and this would provide investors with a dividend yield of 3.3% and 3.8% over that period. However, investors need to remember, Tassal still maintains a higher than average risk profile as it is exposed to the natural environment and strict regulatory controls.
3. Webjet Limited (ASX: WEB) – Webjet has been a star performer over the past 12 months with its share price increasing by more than 80% thanks to a strong rebound in its core Webjet business and the better-than-expected performance from a number of recent acquisitions. The company is forecasting 20% earnings growth for the financial year ahead and this should translate into higher dividends for investors. Analysts are forecasting fully franked dividends of 15.8 cents and 19.5 cents per share over the next two years and at the current share price this would provide investors with a yield of around 3% and 3.6% respectively.
The three stocks that are listed may not have the biggest dividend yields right now, but their future growth potential means their is a good chance of much higher dividends in the future. With that in mind, investors should always remember that forecasts are never guaranteed and should never be solely relied on to make an investment decision. Instead, investors who are interested in any stock should always complete further analysis of the company's fundamentals to determine whether or not it meets their investment criteria.
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