Seven top yield stocks

Financial journalist
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With term deposits offering about 3.7% for one year, or 4.2% for three years, it’s no surprise that income-oriented investors have been searching elsewhere for yield. And surprisingly – given the volatility of the share market – that search has led many to share dividends.

The income-producing defensive stocks – the big four banks, and Telstra – have been the staple homes of this kind of investment. The bank dividends, for example, pay better than deposits in the actual bank.

But in other areas of the stock market, there are plenty of companies that could be considered for an income portfolio, if you’re prepared to put up with less certainty of income – the actual dividend that is paid could be lower than expected.

Casting an eye over the combination of dividend forecasts from broking firms CIMB Securities and RBS Morgans revealed some juicy yields. Some were too juicy: if you see a double-digit yield on a stock dividend, it is unlikely to be met. The highest yields are those where the expected dividend is most likely to be cut.

The other major caveat to using stock dividends for yield is that you could very easily see your nice expected yield eroded by falling share prices. While it is true that, over the long term, dividends generate more than half of the total return from the stock market – the simple fact is that in the short term, the volatility on the stock market means that a 5% dividend yield can be negated in a single day on the market.

Here are some of the potentially higher-yielding stocks from the CIMB Securities/RBS Morgans coverage that pay fully-franked dividends – which you need in order to turbo-charge your returns in an SMSF. (Yields are based on early September prices). Bear in mind, though, that until they are paid and received, dividend forecasts are only analysts’ opinions.

GUD Holdings (GUD)

GUD manages a diversified portfolio of branded consumer and industrial products and services companies, among them Sunbeam, Ryco, Wesfil, Davey pumps, Oates, Lock Focus, and Dexion. GUD is predicted to pay a dividend of 50 cents in the current financial year, equating to a yield of 8.3%. For an SMSF in accumulation phase, that is equivalent to about 10.1%. In pension phase that rises to 11.8%.

Monadelphous (MND)

Engineering, construction and mining services company Monadelphous, is expected to pay a lower fully franked dividend in 2014, 6.1% on current prices. This becomes about 7.3% in the hands of an SMSF in accumulation phase, and 8.6% for a fund in pension phase.

DWS Limited (DWS)

IT services company DWS is expected to pay 11 cents in dividends this financial year, which puts it on a yield of 7.3%. That becomes about 8.8% to an SMSF in accumulation phase, and 10.4% in pension mode.

Oakton Limited (OKN)

Fellow IT services company Oakton Limited (OKN) is also a high dividend payer, priced on a 6.3% prospective yield. To an SMSF in accumulation that is equivalent to about 7.74%, and to a pension-paying fund it swells to just over 9.0%.

Prime Media Group (PRT)

Prime operates the PRIME7 Television Network, which covers the regional locations of Northern and Southern New South Wales, Victoria, the Gold Coast area of eastern Queensland and all of regional Western Australia, with a potential audience of over 5.1 million people. Prime’s expected dividend is 7.1%, which to an SMSF in accumulation mode equates to just over 8.6%, and to a pension-paying fund translates to about 10.1%.

Wellcom Group (WLL)

Marketing technology solutions and services company Wellcom is priced at 7.3% this financial year, which becomes almost 8.9% to an SMSF in accumulation phase and almost 10.5 if held in a fund paying pensions.

Mortgage Choice (MOC)

Mortgage broking company Mortgage Choice is priced on a prospective yield of 5.5% this financial year, which translates to 6.7% for an SMSF in accumulation mode and about 7.9% for a fund in pension mode.

Some of the infrastructure stocks, for example DUET, on a prospective yield of 8.19%, and Sydney Airport, on 6%, could also be contenders for a yield portfolio, although their yields are not franked. Telecom New Zealand is priced on a 7.1% prospective yield, but the franking is not equivalent to full Australian franking. Yield investment has its pitfalls, of which investors must be aware, but in the gamut of dividend yields available – while keeping in mind that higher yield always equals higher risk – there are some potentially sound contributors to back up Telstra and the big banks in an income portfolio.

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.

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