The share market is becoming a popular investment strategy for Australians who are cautious. Your Money Magazine chooses the best stocks that will provide you with long-term income.
More people are purchasing stocks in companies with a track record of paying solid dividends, as the European debt crisis shows fewer signs of improvement.
Traditionally, the infrastructure and utilities sector has been an attractive sector for dividend investors, as it’s an industry that’s traditionally been removed from market sentiment and volatility while delivering consistent revenue streams. There are many great stocks in other areas that can be found for income investors.
Another key reason for pursuing the dividend-investing strategy is the shares of most ASX-listed companies are fully-franked, meaning shareholders don’t pay tax on the dividends they receive.
What stocks are worth investing in?
1. Woolworths (WOW).
According to Morningstar, annual growth in Woolworths’ earnings per share (EPS) and dividends per share (DPS) is over 17% – an outstanding return for shareholders over the past 10 years.
This company is known for its exceptional management. For example, the ‘Project Refresh’ strategy cut costs by about $8 billion in the decade to 2010.
Primarily involved in necessity goods – food and liquor – Woolworths is largely considered a defensive stock that has branched out to other industries. Woolworths was one of the few stocks to be given a “wide” moat rating by Morningstar, meaning the company has a clear competitive advantage
2. Telstra (TLS)
Telstra’s position in the telecommunications market has always been a competitive advantage. With a less-than-impressive share price, it’s all the more reason to invest in a company that has a strong return on equity and a history of consistent dividend payments
3. Spark Infrastructure Group (SKI).
This infrastructure fund invests in utilities like electricity, gas, and transmission. Spark’s regulated market is where prices change every five year and there is little competition. Investors can expect stable returns. Although Spark’s dividends aren’t franked, yields remain impressive at just above 7%.
4. APA Group (APA).
APA is involved heavily in infrastructure related to energy. It holds interests in 25% of Australia’s natural gas transmission pipelines and is the country’s largest natural gas infrastructure firm – which is a big deal, since gas is a rapidly growing source of energy in Australia. It is a popular choice for dividend-seeking investors, with 6.3% yields.
5. Commonwealth Bank of Australia, (CBA)
The Commonwealth Bank is the country’s biggest retail bank. Its Core Banking Modernisation (CBM) program has improved efficiency by replacing its IT with real-time banking services that set up accounts faster – leading to better customer experience. The yield is solid at 7% and the return on equity almost 20%. The company issued $3.5 million worth of covered bonds this week. This can be seen as a strategy to deal with rising funding costs.
6. Envestra (ENV)
Envestra is one of Australia’s largest natural gas distributors; it charges retailer firms to transport natural gas through several Australian states. Because it operates in a monopoly environment, it is able to generate a stable and steady cash flow. Dividend yields are below 7% and DPS will gradually increase next year.
7. Wesfarmers (WES).
Wesfarmers has a wide range of businesses, from coal mining to retail. Even though its 2011 returns were not great, 6.3% dividend yields were achieved. Morningstar projects that the yield will increase to 6.6% in the coming year. Wesfarmers has seen a boost in earnings from its coal mining operations and the revamped Coles.