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What’s The Best Income Stock: BHP Billiton plc, J Sainsbury plc Or Intu Properties PLC?

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With interest rates set to stay low for a number of years, it is understandable that dividends are still very popular among investors. However, finding the stocks that offer a mix of great yields, the scope for dividend growth as well as a fair price to pay for a slice of the business can be a major challenge.

Furthermore, finding a stock that is operating within an industry that has considerable future appeal is also tough. For example, BHP Billiton (LSE: BLT) (NYSE: BBL.US) offers a top notch yield, excellent dividend growth potential and a sound balance sheet, but operates within a sector that is set to see its demand/supply imbalance continue over the medium term. As such, the outlook for BHP Billiton’s bottom line is rather downbeat, with its earnings forecast to fall by 43% in the current year and by a further 27% next year.

Despite this, BHP remains a very appealing dividend play. For example, it currently yields a whopping 5.9% so that even if dividends are cut, it should still easily beat the income appeal of the FTSE 100, which has a yield of around 3.5% at the present time. Furthermore, BHP’s split into two (via the South32 spin-off) should also provide the company with renewed impetus and allow it to generate greater efficiencies and cost-cutting. As such, and while BHP’s short term may be tough, its longer term future remains relatively appealing.

Another company that falls into a similar bracket is Sainsbury’s (LSE: SBRY). It is still struggling to come to terms with a challenging UK supermarket sector, with its net profit due to fall in each of the next two years. Despite this, Sainsbury’s still offers a great dividend, with it currently yielding 3.7%.

And, best of all for its investors, Sainsbury’s has a payout ratio of over 2, which indicates that even if its bottom line continues to come under pressure, dividend increases should be on the horizon. Meanwhile, any upturn in its performance could also mean considerable scope for rapid dividend rises over the medium to long term.

One stock that is enjoying something of a purple patch is shopping centre operator and REIT, Intu Properties (LSE: INTU). It is benefitting from the increased purchasing power of the UK consumer and, with its share price having risen by just 2% in the last year, still offers a yield of 4.3%. The problem with Intu, though, is that its earnings are forecast to rise at only a modest pace over the next couple of years, and yet it pays out almost all of its profit as a dividend.

This situation is unsustainable in the long term and, while Intu is a relatively appealing income play, it needs to either cut its dividend or grow earnings faster than shareholder payouts so as to provide sufficient reinvestment in the business for future growth. As such, BHP and Sainsbury’s appear to have more appeal than Intu, with BHP’s stunning yield of 5.9% making it the most enticing income play of the three, despite its near term outlook being decidedly uncertain.

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Peter Stephens owns shares of BHP Billiton and Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.