A company's earnings belong to its shareholders, and for most companies that I own shares in, I like to see some of those earnings paid out to shareholders as dividends.
I wrote last week why dividend-paying stocks tend to outperform those companies that choose not to pay dividends, and that's why I prefer companies that pay you to own them.
And in this low-interest rate environment when bank deposits will be lucky to pay you 2.3% (excluding bonus interest), finding and investing in shares with dividend yields of more than 5% fully franked is a virtual no-brainer.
Here are three companies that are often overlooked by investors but pay out wonderful dividends.
Retail Food Group Limited (ASX: RFG)
One of Australia's leading franchisors with major brands including Gloria Jeans, Donut King, Michel's Patisserie, Esquires, Pizza Capers and Crust Gourmet Pizza, Retail Food Group current sports a dividend yield of 4.5%, fully franked. But thanks to strong earnings growth, the dividend yield could jump to as much as 5.4% (or 7.7% grossed up for franking credits) in the next year.
Tamawood Limited (ASX: TWD)
Tamawood is a home designer selling houses through its Dixon Homes brand, and has been able to generate impressive returns – even when the housing market slumped to a 20-year low in 2001, following the introduction of the GST in 2000. Boasting a dividend yield of 8.4% – which grosses up to 12% when you include franking credits, Tamawood shares are also trading at a cheap price. Amazingly, Tamawood has an average dividend yield of 9.7% over the past decade according to Commsec.
Shriro Holdings Ltd (ASX: SHM)
Shriro is a distributor of kitchen appliances, fititngs and fixtures throughout Australia and New Zealand with several brands including a number of its own brands. Shriro has formed partnerships with a number of reknowned chefs including Neil Perry for a range of kitchen appliances and more recently UK celebrity chef Heston Blumenthal to create a worldwide Barbeque brand. Currently trading on a trailing P/E ratio of just 6.5x and paying a 7% fully franked dividend, Shriro is forecasting modest growth in 2016 as it invests in its BBQ launch, but expects stronger growth in 2017/18 with new product launches.
