We give you the big dividend paying blue chips. The average yield on the Big 4 ASX banks is very strong at just under 6%.

One thing we like about the big resource stocks is their high propensity to return profits to shareholders directly.

Their average forecast dividend yield of just over 10% speaks for itself.

How can I invest in stocks with high dividends?

Do you need to invest to earn a decent monthly income? Stock that have very high dividends are the most attractive options to consider. Dividends are issued to investors as an aggregate percentage of profits the company generates.

The majority of ASX Dividend shares are paid to investors half-yearly, and they often also have high dividend payout increases over time, so the investor can build annuity income streams like this. Investors can even re-invest your dividend or you can take the dividend as cash. Companies paying dividends generally have strong roots, and dividend stocks can add stability to your portfolio.

Which is our Favourite Bank? The Big 4 ASX Banks

The banks have rebounded, but not by nearly as much as they’ve been hit. We remain confident in the banks because Australian corporates and household balance sheets are in very good shape, which means they can withstand a material rise in unemployment. The big positive in the sector is the banks themselves, which continue to have very strong balance sheets that act as a buffer when there is pressure on customers and defaults occur.

What are the dividend yields on the Big Banks in 2022

The average yield on the banks is very strong at just under 6%.

In terms of favourites at July 2022:

• we like ANZ Bank (ANZ), where the target opportunity is 47% and the dividend yield is 6.7%;

• next is Westpac Bank (WBC), target 45%, yield 6.5%,

• National Australia Bank (NAB), target 22%, yield 5.6% - all are buys.

• Commonwealth Bank (CBA) with target -9.4%, yield 4.4% is the most expensive and a hold.

What about the big Resources stocks?

One thing we like about the big resource stocks is their high propensity to return profits to shareholders directly.

Their average forecast dividend yield of just over 10% speaks for itself.

• Rio Tinto (RIO),

• BHP Billiton (BHP) and

• Fortescue Metals (FMG)

Passing on rising costs

Rising costs are a very big issue and bigger companies have a great ability
to pass on those costs.

Big Balance Sheets

They also have bigger balance sheets to absorb hits such as asset write-downs and unforeseen imposts. On the labour side, there hasn’t been any increase in the aggregate wage price index yet, but anecdotal evidence points to rises over the next two to three quarters.

Size does give you an element of insurance in your portfolio. More important than this is value, which dividends often represent.

"Our positive recommendations
on Worley are paying off as its stock price resilience reflects strong growth in contract wins. In
the past 12 months WOR has returned over 27% versus the -8.3% return of the benchmark S&P/ASX 200 Index.”

BLUE CHIP VALUE Report

We give you the big dividend paying blue chips in our Blue Chip Value Report.

If you are interested in learning more about the Blue Chip Stocks and how to invest in this area read more here.

July 2022 Market volatility and Big picture economic update

During the market wide sell off in June 2022, infrastructure ASX stocks like APA Group (APA) and Transurban (TCL) have held their ground. These are stocks that pay consistent dividends, but are low growth and are in contrast to other asset classes like bonds and property. This is what we call value.

Rising interest rates reduces asset prices because the discount rate applied
to future cash flows is increased.

Access our famous Small Cap Stocks and read more about how they pay dividends too.

The difference between Bonds and Stocks

Bond holders receive annual or semi-annual coupons for a fixed period such as three, five, 10 and even 30 years, while shareholders receive dividends. There are three key differences between bonds and stocks.

1. Bonds are fixed payments, while stocks provide variable dividends. The dividend companies pay is not fixed, but is determined by the board, which has discretion over the amount of profits to pay out in
the form of cash.

2. Finite versus into perpetuity.
Unlike bonds, the payment of dividends is into perpetuity. When you do a discounted cash flow valuation of a stock, a big component is its terminal value, which is the value of those dividend payments into perpetuity.

3. Pecking order theory of shareholder returns.
Unlike a creditor, shareholders are lower in the pecking order when it comes to payment terms. This is why returns for equity investors are higher. After all, how are you going to incentivise people to be shareholders when they could otherwise be creditors with more income certainty?

You could add franking credits, but this is an Australian peculiarity. The point is that shares provide much more potential because of the perpetuity factor. Infrastructure stocks are being snapped up by global pension funds for this reason (see our note on Transurban (TCL) in Blue chip report 107).