It's fortunate that for income seekers Australia offers some of the world's highest dividend yields when it comes to share market investing. When you factor in the benefits of tax effective franking credits that income jumps even higher, which means ordinary Australians would be crazy not to take advantage of income shares in today's low cash rate world.
Of course it's no use buying a stock for income if its capital value depreciates over the period that you hold it.
That's why it's crucial to look for companies on good valuations, with outlooks to keep growing earnings over time.
Below I have four businesses that I would buy for income and hopefully some growth in the years ahead.
Vocus Communications Limited (ASX: VOC) is my favourite pick in this space as its big share price falls recently mean investors today are likely to be locking in a decent fully franked yield and growth potential. If you conservatively assume the business pays 19 cents per share in FY17 then it offers a fully franked yield of 4.75% when selling for $4 per share, with plenty of opportunity for capital appreciation ahead in my opinion. I would allocate $15,000 on the basis that this business looks cheap.
Mantra Group Ltd (ASX: MTR) is the hotelier behind popular accommodation providers like the Peppers, Mantra and Breakfree brands. In total it has 126 properties and more than 21,500 rooms under its control largely across Australia. Clearly, it offers strong leverage to the long-term growth in tourism to Australia from Asian holidaymakers in particular. The stock has also been sold off recently to sell for $3.07 with analysts' forecasts for dividends totaling 13 cents in FY17 it offers a potential fully franked yield of 4.4% to boot. Given the valuation, I would allocate $15,000.
Retail Food Group Limited (ASX: RFG) is a now vertically integrated fast food franchisor, coffee roaster and distributor. It has a capital light business model and an experienced management team with a proven track record of growing dividends and profits via acquisition and organically. The stock still looks reasonable value at $7.15 and offers an estimated fully franked yield of 4.2% in FY17. Given its valuation, I would allocate $10,000 to this business.
Event Hospitality & Entertainment Ltd (ASX: EVT) is another business in the leisure and tourism sector that looks to be on an attractive valuation after recent share price falls. The stock is selling for $13.65 as investors perhaps worry about the impact of Airbnb on its business. However, it grew net profit and dividends by 20% and 13% respectively last year, with expectations for another strong year of growth ahead. The fully franked dividends over FY17 should comfortably yield over 4% with the shares offering capital growth potential in my opinion. Given its valuation, I would allocate $10,000 to this business.
If those four businesses don't offer strong total returns over the next couple of years from here I would be surprised.
And I'm not kidding!
But there are plenty of fish in the sea when it comes to BIG dividends in Australia….
