If you're looking to start the new year with a fresh look at dividend payers, I personally think the most important factor you need to consider is the level of growth in the dividend (or distribution) and not just the overall yield.
For example, consider the income yield of Seven West Media Ltd (ASX: SWM). The stock provides a juicy 11.2% yield and it is fully franked to boot.
Given an excellent compound annual growth rate for a portfolio would be anywhere from 8% to 12%, it should surely be a simple matter of just buying Seven West Media and then forgetting about it right?
Not quite.
Given the company's earnings and dividends are forecast to fall by 11% and 10% respectively for each of the next two financial years, the last thing you need are shares that pay less and less to you each year.
I'm always suspicious of very high yields. Either it means the stock is undervalued, or the market has it right and the dividend is due to be slashed.
The best thing you can do then is to focus on companies that pay a reasonable dividend yield to begin with, but also promise some semblance of growth.
Here are three stocks that can be added to your watch list as they exhibit both a reasonable yield and growth in the dividend.
Chorus Ltd (ASX: CNU)
It's possible many readers haven't heard of this company. Separated from Telecom (New Zealand) back in 2008, and listed on the ASX in late 2011, today it's New Zealand's (NZ's) largest telecommunications infrastructure company.
Chorus Ltd owns the majority of the infrastructure in NZ, including copper and fibre. More recently it has been responsible for the implementation of the NZ government's Ultra-Fast Broadband. The company's customers are the telecommunications retailers who rent access to the network for their own customers.
The dividend yield today is 4.92% (unfranked). It is forecast to grow its dividend 7.6% for 2016-17 and 9.1% in 2017-18.
APA Group (ASX: APA)
APA Group operates a number of natural gas pipelines and gas storage facilities in addition to its interests in various energy infrastructure companies in Australia.
The listed securities are stapled in that the Australian Pipeline Trust and the APT Investment Trust are combined into the one security.
At the current price of $8.25, the securities pay an unfranked yield of 5.2% with growth rates of 6% and 5.7% for each of the next two years respectively.
If you're comfortable with moderate share price appreciation but a solid starting yield (especially when compared to cash rates), APA Group is certainly worth a closer look.
Genesis Energy Ltd (ASX: GNE)
Another company hailing from New Zealand, Genesis Energy Ltd is a diversified energy company that generates and sells electricity, natural gas and LPG through a number of its retail brands.
In addition to retail though, the company also has a large number of commercial and industrial customers providing a diversified source of income.
The starting yield for an investment today is an unfranked 8.3% (which implies risk, I know) but the forecast growth in the company's dividend is expected to be close to 6% over the next two years.
Foolish takeaway
Each of these companies won't provide enormous capital gains, but you don't need huge capital gains to do well when investing in the share market.
These are three ideas that piqued my interest not only because of their attractive yields at current prices, but also because the yield for each looks sustainable with moderate growth expected.
And if you're looking for more dividend ideas, you can read about our highest-conviction dividend payer for 2017 below.
