The usual suspects for dividend yield are resembling a line-up of losers. Consider the banks. ANZ, Commonwealth Bank (CBA), NAB and Westpac (WBC) have prospective yields of 6-7% before franking, using consensus estimates. That’s attractive, but banking risks are rising, as property prices fall and extra regulation weighs on profitability.
Another go-to income stock, Telstra Corporation (TLS), should yield 5.5% in FY19 before franking. Its challenges are mounting as it loses market share in mobile phones. Infrastructure stocks, sought by income investors for defensive yield, are mostly fully valued. Then there’s Australian Real Estate Investment Trusts (AREITs). It’s hard to see AREITs and other interest rate-sensitive sectors outperforming in a global environment of rising rates.
Yield bulls could even make a case to buy BHP Billiton, Rio Tinto or Fortescue Metals Group given their prospective yields of 5% to 7%. The resource sector, however, is no place for conservative income investors, given dividends depend on volatile commodity prices.