For many investors securing a steady stream of income is a top priority as they look to plan for a blue-chip retirement where life's luxuries are readily affordable thanks to a steady stream of dividend payouts.
The yield hunt takes on more urgency when you consider that real interest rate returns in Australia are close to zero after your subtract the effect of annualised inflation (around 1.5%) from what you will receive from a term deposit at the bank for example.
No wonder investors are looking for dividend stocks on reasonable valuations then. Below I have three businesses on reasonable valuations that offer the potential for capital and dividend growth over time.
Retail Food Group Limited (ASX: RFG) Is the franchisor business behind fast food operations like Gloria Jean's Coffee, Brumby's Bakery, Donut King, The Coffee Guy and Crust Gourmet Pizza, among many other fast food brand outlets. It also imports and roasts coffee on a wholesale basis for distribution across Australia. The coffee business is growing strongly with a fully franked yield of 4.8% and forecasts for 20% profit growth in FY16. The stock looks a buy.
Iress Ltd (ASX: IRE) is a financial software business I have written repeatedly about in the past thanks to its market-leading operations, attractive economics and solid track record of dividend and earnings growth that I expect to continue. The stock trades on a high valuation for good reason and analysts' forecast for dividends per share of 50 cents in the year ahead mean it trades on a partially franked estimated yield of 4.4% when selling for $11.38. On any price weakness this looks a stock for dividend seekers to own.
Magellan Financial Group Ltd (ASX: MFG)
Is the international equities manager that is now growing high-margin retail funds under management at a decent rate thanks to its growing reputation and retail distribution networks. Importantly, the business is also relatively young and founder led which means costs are controlled and an underlying focus on business performance is readily attainable.
It's also scalable as additional fee income can be garnered via larger funds under management without having to add much more in the way of costs through new staff members. Recent Brexit-related wobbles mean the stock sells for $21.50 and I expect its full year dividend will be able to match its interim dividend payout of 51 cents per share to place it on an estimated fully franked yield of 4.7%. The stock looks a buy.
