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.
Two underappreciated dividend stocks
Turning the tide
After years in the doldrums, fund manager DNR Capital is increasingly positive on Telstra’s outlook. The fund manager’s chief investment officer, Jamie Nicol, recently outlined how Telstra (ASX:TLS) has faced disruption head-on, preferring to focus on new opportunities which have enabled it to be an attractive investment once again.
DNR’s focus is on finding quality stocks that are trading at attractive valuations; not always an easy feat. But while Telstra has been a laggard as a stock for the last decade, DNR believes it has a high-quality business.
Nicol says many don’t think of Telstra as quality because it’s had a poor 20-year record, at least in terms of sentiment. The telco has faced a multitude of disruptions such as mobile phones which killed its fixed-line business; the internet killed its directories business; and the NBN killed its broadband business. Nicol says quality today is about the “improvement coming through” the pipeline.
Looking at Telstra now, it has two core businesses. The infrastructure business i.e. towers and pipes, and mobile phones business which has a great outlook. Post Covid-19, people will start travelling overseas and mobile phone revenue will continue to rise.
Nicol compares the banks to Telstra, suggesting that in the short term the banks are OK; but the longer term looks challenging with massive disruption in play. A lot of fintechs are starting to show up, such as Afterpay (ASX: APT), that are coming after the very large profit pool. Looking out five years, the banking sector looks challenging. For Telstra, on the other hand, the longer-term outlook is much more attractive.
Underappreciated yield
Scott Kelly, DNR Capital’s portfolio manager for the Australian Equities Income Strategy and Fund, discusses Qube Holdings (ASX: QUB) and why it features as part of the Income portfolio.
Placing QUBE into the income portfolio demonstrates the company’s ability to add stocks into the portfolio that have a sustainable and growing dollar income profile with a valuation upside, rather than just focusing on those paying the highest yield.
Kelly says QUBE is Australia’s largest provider of import and export logistics, and operates in 137 locations outside the country. The company ranks quite highly on its quality metrics. The company has good earnings visibility underpinned by ‘take-or-pay’ contracts and solid counterparties.
He suggests that the balance sheet is solid following the Moorebank sale and is expected to be in a net cash position of at least $800 million for any further acquisitions. That allows dividends to be sustained at 2%. But with double-digit growth, Kelly expects this dividend to grow.
The investment thesis on QUBE is very much on the sale of Moorebank. With a war chest of cash, the company is attractive. It continues to perform very well, with tailwinds continuing into the next year.
He says the market is underestimating the potential contract wins and leading indicators in mining. All should underpin what looks like a great year ahead. While the stock is trading on a lofty PE of 35 times earnings, it doesn’t reflect the value of earnings. DNR values the stock at $3.75, versus the current price of $2.94.
