On Tuesday, the Reserve Bank of Australia (RBA) acted to cut Australia's cash rate by 0.25% to a new record low of 1.75%. Bank of Queensland Limited (ASX: BOQ) and National Australia Bank Ltd (ASX: NAB) have already acted to pass on the full-rate cut on their variable loans. This implies deposit rates are also set to drop as part of the banks' treasury management. This makes high-yield stocks very important for investors relying on stable income.
Here are three stocks I believe would make a solid income-generating portfolio, whilst providing a good mix of speculative, growth and core investments:
1. Countplus Ltd (ASX: CUP)
On Monday, Countplus' management provided a market update in response to its recent share price weakness. Management reiterated profit guidance in announcing its 2016 full year net profit should "not be materially different from last year's results, if not marginally higher."
The update was driven by a material increase to Countplus' holding value of its investment in Class Limited (ASX: CL1). The cloud-based software provider has surged strongly since listing, valuing Countplus' 5.04% stake in Class at $15.2 million (or 20% of Countplus' entire market value). This is likely to increase if Class continues its astronomical growth.
Although Countplus faces its own challenges in its non-investment business, its dividend yield is akin to that of a speculative stock. As part of its market update, management reiterated full year dividend guidance of a fully-franked 8 cents per share, implying a yield of 12.3% (plus franking credits) at current prices.
2. Retail Food Group Ltd (ASX: RFG)
Retail Food Group is a bit of a long-time favourite of mine; the aggregator of cafés and pizza outlets has grown from strength-to-strength, ticking all the right boxes along the way.
In its latest results, Retail Food Group reported an increase to underlying net profit after tax of 27.1% and announced its 19th consecutive dividend increase.
With international expansion plans already in place, this trend of growing profits (and dividends) should hopefully continue well into the future. Although the company trades on a 4.6% fully-franked yield today, its dividend should grow over time, making it an excellent growth stock for the income-focused investor.
3. Telstra Corporation Limited (ASX: TLS)
It is hard to discuss yield stocks and not make mention of Telstra; the telecommunications giant boasts a reputation as the gold standard in reliable income, paying its coveted fully-franked dividend every single year since listing.
Telstra's last two dividends were fully-franked at 15.5 cents each, implying a very respectable gross yield of 7.9% at current prices.
Importantly, new chief executive officer Andrew Penn has indicated that he plans to use proceeds from Telstra's sale of its Autohome stake to fund a capital management program of at least $1.5 billion. Whilst specifics on the capital management program are unclear at this stage, market rumours suggest management will pay either a special dividend (subject to available franking credits), or announce a buy-back of some sort.
Both options are likely to be shareholder friendly, making Telstra a sound investment as part of your core income portfolio.
Foolish takeaway
Investors should not purchase a particular company solely for its income, given dividends are not immune to cuts. Australia and New Zealand Banking Corporation (ASX: ANZ), BHP Billiton Limited (ASX: BHP) and Woolworths Limited (ASX: WOW) are but three (of many) stocks which can attest to that.
Nevertheless, when constructing a portfolio for generating stable income, investors should look to purchase a mix of stocks that provide a good blend of growth and stability. I believe Countplus, Retail Food Group and Telstra Corporation can do just that.
