Giant telco Telstra Corporation Ltd (ASX: TLS) is a big favourite with investors, largely due to its reliable dividend. Its strong market presence and the highly liquid market for its shares adds some safety in the event of needing to liquidate your cash quickly.
Yet with the risks in Telstra increasing, and a number of other high-yielding companies on sale, are there better places to go for income investors to get their dividend fix? I think so.
WAM Capital Limited (ASX: WAM) – yields 6% fully franked
A listed investment company, WAM's 6% dividend is actually marginally below Telstra's. Yet it receives an honorary mention both for its outstanding long-term record – growth of 18% per annum since 1999 – and the diversification and investing expertise it brings to an investor's portfolio. One key concern is that shares trade at a 20% premium to Net Tangible Assets of $2.05 per share.
Yet for investors looking for reliable dividends and growth over time, you could do a lot worse than to start building a position in WAM.
Thorn Group Ltd (ASX: TGA) – yields 6.6% fully franked
Thorn shares have fallen out of favour recently due to write-downs conducted at its most recent results as well as an investigation by the regulator into some of its operating practices. While Thorn says it has improved its compliance now, the issues are historical and could still result in penalties to the company.
However, Thorn's dividend is well covered by existing earnings, and it has recently redeployed significant capital from its debt recovery business into its mainstream leasing business. This should lead to improved returns over time. While Thorn is higher risk in the sense that some of the risks (i.e. likelihood of regulatory penalties) are unknowable, it appears financially stable and investors are well compensated for the risk.
G8 Education Ltd (ASX: GEM) – yields 7.8% fully franked
Childcare operator G8 Education has also fallen out of favour after a sharp increase in costs and the fact that several of its recent acquisitions have not lived up to expectations when they were purchased. As shares dived, G8's dividend has blown out to a whopping 7.8%. This appears sustainable as it is well covered by earnings.
Occupancy and costs remain a concern, although as I showed here and here, these metrics have remained quite constant for G8 over the past five years. Additionally it appears as though the recent half-year results could have been exaggerated by the seasonality of G8's earnings (which are weighted to the second half of the year) and thus the company could be in a better position than the market expects – making G8 an attractive dividend idea today.
