Savers, retirees and other income-focussed investors are facing slim pickings at the moment. With interest rates sitting at record lows, savings accounts and term deposits are offering record low returns… and many experts are tipping rates could fall even further.
For those after income from their investments to fund their retirement or lifestyle, the challengno now is how to maximise income returns while maintaining the appropriate risk levels.
Focusing on term deposits or online accounts will eek out a slightly higher return while the various hybrid corporate bonds are also an alternative.
But many investors are going back to blue chip shares paying a good dividend yield, and the prospect of potential capital growth, as an alternative. These payments can provide much higher returns than you’ll find in a bank account or term deposit, and may also earn you a tax credit (known as a franking credit).
The trade off, and there’s always a trade off when it comes to investing, is to receive these dividends you have to take on the risk that the company’s share price could fall as well as rise.
Plus, remember dividend payments are not certain. So if a company is facing tough economic times, for example, it may opt to use profits to shore up its balance sheet or invest in new growth opportunities, rather than pay shareholders a dividend.
That’s why it’s important to consider the dividend yield, the ability to keep paying it and capital growth prospects of a share before investing.
While a very high dividend yield may appear attractive on paper, investors should look for fundamentally strong companies with a favourable long-term outlook and a stable dividend yield,” advises Simon Herrman, equity analyst at Wise-owl.com.
Bearing this in mind we rang around a group of 6 brokers and fund managers for their recommendations on shares which fit that criteria.
Telstra is Australia’s largest telecommunication and media company, and is often found at the top of many lists of income generating shares… for good reason.
Telstra is a cash generating machine with reliable revenue, a consistent dividend yield of around 5.5 per cent and reasonable long-term capital growth prospects.
Harvey Norman (HVN)
Another household name, this multi-national furniture, bedding, computer, and consumer electrical retailer is on track to distribute around 25 cents per share to shareholders during FY16.
The 5.5 percent dividend is fully franked, and the company offers “an attractive mix of capital growth and income”.
Stockland Group (SGP)
Stockland is a diversified property development company that has business in shopping centres, housing estates, industrial estates and retirement villages.
Along with steady capital growth over the past 5 years, investors also receive a reliable, semi-annual dividend yield of over 5 percent.
The key word when it comes to this well known blue chip is diversification.
Operating since 1914, Wesfarmers is one of Australia’s oldest and largest employers with interests ranging from retail (think Coles, Bunnings, Target and others) all the way through to the industrial sector.
Despite flagging writedowns in the Target brand and it’s coal mines, Wesfarmers’ wide range of assets should protect revenues and help them maintain a consistent dividend. The current fully franked yield sits at around 5.1%.
Sonic Healthcare (SHL)
SHL are a Sydney-based medical company that provide laboratory pathology and radiology services. They show great potential for increased dividends and a healthy outlook for growth.
“A well-positioned company with potential to increase its dividend yield and a favourable long-term outlook make SHL a solid dividend play,” said Simon Hermann.
Of course, these are just some of the dividend plays available on the ASX, and there are many others. As with any investment, before jumping in with both feet it’s important to carefully review your goals, risk profile and investing timeframe to ensure it’s right for you.
If in doubt, we’ve always believed the best investment is good advice.
CUTTING HOME INSURANCE PREMIUMS
Home and contents insurance premiums have been skyrocketing in Australia. If you’re struggling to pay them, here are four tips to slash your premiums.
One, know what you need
Make sure possessions are listed accurately with your insurer.
Underestimating their value means you’ll have to pay the difference at claim time, while overestimating means you pay higher premiums and could be considered fraud.
Take the time to properly evaluate the belongings you wish to insure so you don’t get caught out either way. Take a photo of the big items and list all items for accurate record keeping and to avoid disputes at claim time.
Two, understand your options
Increasing the excess on your policy will generally lower premiums, but remember it will also reduce your ability to claim.
Paying premiums annually rather than monthly will be cheaper too.
Three, secure your property
Security features like alarms, security screens, window bolts and smoke alarms improve safety, and can also reduce your premiums.
Four, play the game
Bundle home and contents with other policies from the same provider for a discount.
And don’t just renew your policy each year, shop around for a better deal each time it comes up.
If you find one, your current provider will often go the extra mile to keep your business.