The hunt for income-paying stocks has intensified in recent weeks. Regular readers know this has been my recommended strategy for a couple of years as great companies paying good dividends looked like a safe approach while we waited for the inevitable big bounce that ends all secular bear markets.
The experts say our bear market started in 2007 while the Yanks kicked off theirs in the early 2000s. That said, history shows when the forces creating domineering bears dissipate, stock market bulls go mad and big rises happen.
Bounces in Aussie shares
In case you need reminding about how markets can ricochet, have a look at these local stock market spikes since 1980:
- 1980 48.8%
- 1983 66.8%
- 1985 44.1%
- 1986 52.2%
- 1988 17.9%
- 1989 17.4%
- 1991 34.2%
- 1993 45.4%
- 1995 20.2%
- 1996-2001 10% on average
- 2003 15%
- 2004 27.9%
- 2005 22.5%
- 2006 24.5%
- 2007 16.5%
- 2009 37.6%
Now my point is proven, let me return to income stocks that not only pay good dividends but also have potential for good capital gain prospects.
I asked Gary Stone from Share Wealth Systems to look for some income stocks other than the Big Four banks, Telstra and Coca-Cola Amatil.
Gary Stone’s stock picks
Using his reading of market movements and the inherent potential for capital gain for a stock, he came up with the following companies:
- Tatts Group (TTS) with a yield around 8%
- Oroton Group (ORL) with a yield of 6.75%
- Retail Food Group (RTL) with a yield of 6.15%
- Amalgamated Holdings (HLD) with a yield of 5.56%
- NIB Holding (NHF) with a yield 5.2%
- Automotive Holdings (AHE) with a yield of 6.75% (but its P/E is in the 20s and might have less capital growth potential, but technical signs point to more upside, according to Stone).
Following my brief, Stone found 68 companies paying dividends over 5%. However, he said some, such as Tabcorp, could be a value trap. This is where the dividend yield is high percentage-wise because the share price is depressed. David Jones (DJS) could fall into this category. You can watch my full interview with Stone on SuperTV.
Of course, some investors could be buying DJs because they believe the stock has been oversold, it has potential to nail the internet world or it is a takeover target, and they’re all good reasons to make a play for the retailer. However, don’t buy it because it has a current yield of 11.04% because that won’t last!
DJs is still a good company and might pay a 5% dividend, but it has become a more speculative play until management gets its act together.
Important information: 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. Anyone should consider the appropriateness of the information in regards to their circumstances.