We have just closed out another financial year, with the ASX200 index gaining 7.1 per cent to 30 June 2011. If we include dividends in this equation (the ASX200 Accumulation Index), total shareholder return for the year was 11.7 per cent. Clearly, maintaining an exposure to quality high-yielding stocks is important to boost overall returns. With the upcoming reporting and dividend season, we highlight our preferred yield stocks.

Preferred picks

Our preferred picks have a strong cash flow and a reliable history. The above table highlights our current preferred dividend stocks. When investing for yield, we focus on stocks with solid balance sheets and cash flows and a reliable record of paying dividends to investors. We recommend accumulating yield stocks ahead of the upcoming reporting season, which could see some capital management from those companies with excess cash and franking credits on the balance sheet.

The 45-day rule – buy in July/Aug to dividend strip

The 45-day rule states that investors need to hold a stock for 45 days (not including the day of acquisition or disposal) in order to gain the full benefit of imputation credits on franked and partially franked shares. The rule, however, does not apply if an investors total franking credit entitlement is below $5000 for the year. With many stocks going ex-div in September, a dividend stripping strategy would need to be implemented in July or early August.

Reporting season – potential for capital management

The upcoming reporting season (August) will give companies the opportunity to announce any proposed capital management initiatives. Obviously, companies with strong balance sheets (excess cash and/or franking credits) are the most likely to undertake share buy-backs or special dividends. The resources sector is generally experiencing very strong cash flows, so we see the greatest chance of capital management amongst the large caps in this sector, particularly ongoing initiatives by BHP Billiton and Rio Tinto.

For RBS Morgans' dividends stocks watchlist, click here.