Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Ten high yielding stocks for your portfolio
With Australian interest rates near zero, combined with a central bank that is in no rush to raise rates anytime soon, there really are very few alternatives to equities as a source of yield. Australian investors enjoy high payout ratios, which, allied to the dividend imputation system, creates an additional income stream that can be massively tax-efficient for those investors on lower tax rates. This makes Australian dividend-paying equities particularly attractive
Morningstar has compiled a list of ten franked-income stock ideas from both the Australian and New Zealand coverage list of 189 stocks. The research house has compiled this list taking into account additional income from franking credits and other indicators of dividend sustainability, such as its trademark Economic Moat rating, that seeks to estimate the quality of a company.
It’s understandable that investors are actively looking for income elsewhere, while the risk of inflation moving higher, and interest rates rising over time, increases only slowly. Morningstar says, “while we do see some risk to equity valuations from rising interest rates, we do not think those risks are acute or are likely to suddenly materialise, nor should they deter investors from equity investments. The latter is supported by the relatively low returns on offer in alternative investments such as fixed interest.”
The above table lists Morningstar’s ten top dividend picks. Leading the pack is narrow-moat-rated Aurizon, trading at a 20% discount to Morningstar’s fair value estimate, offering a generous dividend over 7%, mostly franked. Aurizon’s outlook is fairly stable, given almost all of the exports it carries head to Asia, where new coal-fired power plants should underpin growth. The list is heavily tilted towards stable financial stocks such as Perpetual, Link Group, Westpac, Magellan Financial and to a lesser extent, Dexus.
Company dividends have been on a quick and steady path to recovery from pandemic lows, with the potential for further “upside surprise” in certain sectors and stocks. Australia has long been a market characterised by high dividend payout ratios, largely driven by the big banks. However, last year APRA regulated the big four banks to cut their dividends to conserve capital due to the COVID-19 pandemic; not that it was required, as boards had already sought to hoard as much capital as they could. Fast-forward to today, the fallout from Covid-19 wasn’t as bad as expected, and APRA’s payout ratio cap has been lifted. The banks, Telstra and other high-paying stocks are back posting better-than-expected earnings and giving extra cash back to shareholders.
