In a low-interest rate world in recent years, equity dividends have become much more important to investors, particularly self-managed super funds (SMSFs). Usually, this results in investors swarming into the big four banks, Telstra and big miners BHP and Rio Tinto, with their progressive dividend policies.
More adventurous investors have investigated the hierarchy of prospective equity yields – as in, those implied by expected upcoming dividends – and found that this list can stretch well into double-figure yields. At the top end of the yield lists, however, investors need to understand that the prospective return indicates the prospective risk. Dividend yields move inversely to share prices. For example, on the analysts’ consensus dividend forecasts that were in the market, Dick Smith’s price fall now implies a FY16 dividend yield of 18 per cent. Good luck with that!
Investors looking at equity dividends as a source of income have to remember that dividends come out of company earnings, and are not certain in any financial year. But here is a look at four attractive expected yield scenarios, from companies that go about their business under the radar of most investors, where the stock’s ‘story’ could well match the confidence implied by the forecast yield.