While building an income portfolio might sound like an easy task to undertake – all you need is some juicy yields right – in reality, a portfolio aimed at achieving an attractive income stream is just as complex to build as any other strategy.
What's difficult about creating a dividend portfolio?
While identifying appealing income stocks in terms of the dividend yield is not that difficult, superimposing a need to protect your downside from the risk of capital losses is definitely not easy. Capital preservation is critical because receiving a grossed-up 7% dividend payment cannot be considered in isolation. If your portfolio value falls 15%, your overall wealth has most definitely diminished!
Capital preservation is a primary reason Telstra Corporation Ltd (ASX: TLS) remains such a popular income stock. Not only does the stock pay an attractive yield, but investors have confidence in the long-term value of the company.
The following four companies might not be the first stocks you'd consider for income, however with high-yields forecast and share prices that appear undemanding these four stocks could arguably have low downside risks.
Nine Entertainment Co Holdings Ltd (ASX: NEC) is forecast to grow its dividend to 13 cents per share (cps) in financial year (FY) 2017 – meanwhile it is expected to earn 13.4 cps. With a share price of $1.05, this implies an attractive yield of 12.4% and an undemanding price-to-earnings (PE) ratio of just 7.8 times.
Myer Holdings Ltd (ASX: MYR) is forecast to pay dividends totalling 6.5 cps in FY2017 and to earn 9.5 cps. With the department store operator's share price at $1.14, this implies a yield of 5.7% and PE of 12 times.
IOOF Holdings Limited (ASX: IFL) is forecast to pay a flat dividend in FY 2017 of 54 cps with flat earnings per share (EPS) of 53.5 cps also expected. With its shares trading at $8.24, this implies a yield of 6.5% and a PE of 15.4 times.
G8 Education Ltd (ASX: GEM) is one of Australia's largest operators of child care centres. G8 is forecast to increase its dividend towards 30 cps over the next two years and earnings of 32 cps are forecast in FY 2017. With the share price currently near $4, the forecast yield is around 7.5% and the PE is 12.5 times. (source: CommSec)
