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Top dividend-paying stocks

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by Peter Switzer

Since the 6 March low on the stock market, the S&P/ASX 200 index has ridden up close to 50 per cent and now the doomsday merchants are trying to spook the market. And while most experts I talk to are putting their money on a Santa Claus rally, they would not be surprised to see a correction in the first quarter of next year.

So how does a wealth-builder play this dramatically challenging market? For me it’s simple — stick to great companies that pay great dividends. This is a great long-run play for the busy person who just wants his or her nest egg to keep on growing until there’s something to crow about!

And so on my program last night — SWITZER on Sky News Business Channel, which was my third-last program for the year ahead of our end-of-year break — I asked some great stock pickers to give us their favourite dividend-paying stocks.

Unhealthy companies

Tim Lincoln and Elio D’Amato from Lincoln Indicators do a six monthly review of 1800 companies on the stock market and rate their ‘health’. They say 75 per cent are crook to varying degrees as their books have some problems, for example, too much debt.

Top 10

I asked them to give us their best dividend-paying shares. Here they are and some of their comments.

IMF (Australia): This is a fund litigation that does well when companies fail and legal action follows. That sounds timely and they pay a dividend of 8.8 per cent.
Telstra: Needs no explanation, but the dividend appeal is strong and the guys believe the break up will not KO the company.
GUD Holdings: This company distributes the Sunbeam products in Australia and pay a fully franked dividend of 6.9 per cent. It’s described as a “rock solid little business”.
Monadelphous: A billion dollar Western Australia firm supplying services to the mining sector with a dividend of 5.5 per cent.
Westpac: You have to have a bank in a dividend-based portfolio and this is the one the experts went for.
ASG Group: A little IT solutions company with a 5.3 per cent yield and good share price growth track record.
McMillan Shakespeare: This is a company that everyone likes. It’s in the salary packaging space and could be hurt by the Henry Review into taxation but all of the smarties love it.
IRESS Market: Another darling of the experts which services the financial services industry with a 4.4 per cent fully franked yield.
Coca-Cola Amatil: It’s a defensive play, but is a reliable performer and is set to expand into places like Indonesia.
Woolworths: Needs no explanation, but does have more competition from Coles, which is now owned by Wesfarmers. The dividend is fully franked and pays 3.7 per cent.

Sectors to watch

In terms of sectors they dislike, materials topped the list as junior miners have lots of risk. D’Amato puts 90 per cent of the sector in that class but they like the top 10 per cent, which includes miners such as BHP and Rio and are in a class of their own. The energy sector is a similar situation where the biggies such as Origin and Woodside are good ’uns.

Meanwhile, the boys like IT and telcos with the NBN on the way. They also like banking and insurance.

Dividends important

Remember, around 50 per cent of the return from shares comes from dividends and so having some of the best performing dividend paying, rock solid company shares in your portfolio makes a slot of sense. And it makes even more sense when share prices are in very volatile and uncharted waters.

For advice you can trust, contact Switzer Financial Services.

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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, November 25, 2009