Reliable dividend-paying stocks you might not own!

Founder and Publisher of the Switzer Report
Print This Post A A A

These are strange days indeed with the delayed QE3 taper creating a “don’t fight the Fed” mentality, such that so many experts, who expected a correction, are still waiting for it.

I am currently taking the position to buy half of what I like and saving the other half to buy when a correction eventually comes, which might be when tapering looks certain to happen.

Shopping list

So, what do I reckon you should buy? Well, as we have done so well on big companies that pay dividends, which we tipped aggressively — I love being aggressive about big, dividend-paying safe stocks — the next logical step is to go looking for smaller companies that also have a great history of paying out dividends.

To that end I emailed my team of experts for some ideas and this is what they sent me.

Simon Bond of Morgans, who has had a great record tipping good small cap companies on my Switzer TV program, likes Ruralco Holdings Limited (RHL), which is an agribusiness company operating under its own brands in Australia.

RHL operates through a national footprint of businesses that specialise in providing rural customers with products and services including merchandise, fertiliser, seed, wool, livestock, real estate, stock feed, risk management, water, grain, finance and insurance. RHL has over 500 outlets across Australia. It yields 5.75% fully franked. The market cap is $192 million.

He also likes Hansen Technologies Limited (HSN), which is a provider of utility billing, customer care, and smart metering solutions for the electricity, gas, water and telecommunications sectors. HSN also offers outsourcing and facilities management services, and supports the Classic Superannuation administration solution. It yields 5.5% fully franked, with a market cap of $175 million.

FN Arena’s founder, Rudi Filapek-Vandyck, came up with one of his “longstanding favourites” – Ardent Leisure (AAD), which still pays a little less than 6.7% (non-franked). He says the company should grow in the years ahead as it has exposure to US leisure and entertainment and the US economy is on the mend.

He also likes Count Plus (CUP), which he described as “a bunch of accountants and financial planners who recently promised to pay out 12c per year!” CUP pays out quarterly and the promise amounts to circa 6.37% fully franked. “It should be steady and relatively defensive, although there will be acquisitions and this brings along its own kind of risk.”

If you think Count Plus is too small, Sydney Airport (SYD) is growing strongly on the back of domestic airlines adding additional capacity and it still pays yield of 5.3%. Sydney Airport, it has to be said, also has a popular inflation protected corporate bond out in the market, yielding a little below 7%.

Bell Direct’s Julia Lee says: “The key is to find companies with a sustainable and growing dividend. What investors do not want is a company like Chorus which trades on a dividend yield 12.2%. While that looks attractive, the dividend is likely to halve over the next couple of years as a condition for help from the New Zealand government.”

Property power

Here are some of Julia’s mid-cap dividend ideas:

  • Challenger (CGF) –This is a company that is showing strong growth in its core products. It offers a mix of a strong yield, earnings growth and possible capital upside. One thing to be aware of is that CGF pays an unfranked dividend and hence you don’t get tax credits attached to the dividend.
  • Dexus (DXS) – This owner and manager of office and industrial property has a 7.7% forecast earnings yield and 5.8% forecast distribution yield.
  • GPT Group (GPT) – It is one of Australia’s biggest listed diversified property companies and has a forecast dividend yield of 5.7%.
  • Australand (ALZ) – It develops residential, industrial and commercial properties and provides exposure to the strength in the residential housing market. It has a forecast dividend yield 5.9%.
  • MyState (MYS) – This is a smaller diversified financial group. “It has more risk than the big four banks, but a more reasonable valuation and a fully-franked yield of 5.8%. Importantly it is forecasting each of its three divisions to see growth in the current financial year,” Julia said.

Some from left field

Finally, I asked Roger Montgomery to give us some good smaller dividend payers and while they don’t fit his usual profile of a company where the share price is less than its intrinsic value, the following companies were seen as being reliable for dividends.

Ben Macnevin, who works with Roger did the homework and came up with Metcash with a forecast dividend yield of 7.4%, Bendigo and Adelaide Bank with a forecast dividend yield of 5.7% and Coca-Cola Amatil with a forecast dividend yield of 4.8% (75% franked), and while not a small company, CCL is still worth noting. And remember these yields have not been grossed up for franking credits.

There’s a pile of companies worth thinking about if, like me, you want to build up an arsenal of good dividend payers, which should keep on paying out even when the usual you know what hits the stock market fan.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report:

Also from this edition