’s Top 6 Dividend Stocks in Australasia
Attractive Yield + Solid Business Drivers
While equity markets are reaching new heights, bond yield around the world are moving lower. Germany
is on the verge of joining Japan and Switzerland in having 10 year bonds which yield less than zero.
Given bond yields are at such low levels around the world, it is forcing many investors to buy equity’s, in
our view. In particular, higher dividend paying stocks are being supported as investors “hunt for yield”.
Given bond yields are low, in order to generate income many investors are opting to buy dividend paying
stocks as an alternative income stream, and we believe this trend is only set to continue as interest rates
remain low in Australia and New Zealand. As such, across our Australian and NZ portfolios we have a number
of selected high dividend paying stocks, which should be supported by investors in a low rate environment.
Particularly in the NZ market, where market valuations appear stretched, we believe dividend return will be
more important for the year ahead given the likely lack of further share price appreciation.
In saying that, investors should not simply blindly invest in the highest dividend paying stocks. A company’s
fundamentals and earnings drivers must also be assessed, in particular in relation to dividend sustainability.
Keeping this in mind our top 6 dividend stock ideas across AU/NZ are:
Spark (SPK.NZ / SPK.AX) Telstra (TLS.AX)
PGG Wrightson (PGW.NZ) Generation Healthcare REIT (GHC.AX)
Tourism Holdings (THL.NZ) Ardent Leisure (AAD.AX)
Spark (SPK.NZ / SPK.AX)
Investment Case:
We continue to believe SPK is in the best shape it’s been in for many years. The next
phase of SPK’s multi-year transition strategy is leveraging its networks and digital
services capability. Given the opportunity’s & SPK’s track record in recent times, we
believe there are still gains to be made as they undertake this process. While the stock
has pulled back of late on the announcement of a merger between Sky TV and
Vodafone, we see this as more of a buying opportunity.
Dividend:
SPK offers a very attractive dividend yield of 7.3%, and this is backed by a solid
balance sheet. At the current juncture, SPK has excess capital which can distributed to
shareholders in the form of 1) share buybacks; 2) significant dividend increases; and 3)
special dividends, as were alluded to in SPKs last investor update.
24 May 2016
PGG Wrightson (PGW.NZ)
Investment Case:
PGW is well positioned to benefit from global food trends (“dining boom”) with its
diversified agriculture portfolio approach. In particular, PGW is focused on
commercialisation of agri-technologies whereby farmers are able increase output
efficiency. Furthermore, the company is committed to gaining significant exposure to
both Asia (in particular China) and South America. Both are experiencing significant
population growth and is expected to provide further demand benefits for PGW’s
agricultural exposure.
Dividend:
PGW offers a bumper dividend yield of 12.8%, and given recent profit guidance
upgrades the dividend does not look at risk. A strong autumn sales season in New
Zealand has contributed to an uplift in PGW’s profit (EBITDA) guidance for the financial
year to $65 to $68 million, up from the previous guidance of $61 to $67m indicated in
April.
Tourism Holdings (THL.NZ)
Investment Case:
From a thematic point of view, THL fits some of our strongest portfolio thematic views
in the NZ portfolio: 1) Tourism Boom and 2) NZ Dollar Weakness. Tourism is set to be
the biggest benefactor of a weakening NZ dollar, in our view.
Dividend:
While THL shares are not “cheap” at current levels, they offer a healthy dividend
yield of 6.4% and we believe the company’s earnings will continue to be supported
by the tourism boom over the medium term.
24 May 2016
Telstra (TLS.AX)
Investment Case:
TLS has been investing heavily into defending its dominant market position and
maintain earnings growth. One such project was a proposed expansion into the
Philippines which has now been cancelled, although this may not all be bad news.
While TLS’s earnings growth outlook may not be “exciting”, TLS is defensive Telco with
an attractive yield, and has become a staple dividend stock in the ASX.
Dividend:
TLS currently offers a dividend yield of 5.9%, which should be supported by the
company’s strong balance sheet, as shown in the TLS extract from its investor
presentation. TLS is also set to receive further cash inflows from the government run
NBN project in Australia.
Generation Healthcare REIT (GHC.AX)
Investment Case:
Australia’s only ASX-listed real estate investment trust that invests exclusively in
healthcare property. expects to observe a structural pick-up in demand for aged
care goods & services as baby boomers near retirement. Retirement village space,
private hospitals, aged care providers and funeral services and all likely to observe
strong growth rates and demand picks up for the services. In addition, healthcare
property has low volatility and is typically less cyclical than other property classes. This
provides attractive exposure for investors seeking stable income and exposure to the
property sector
Dividend:
While GHC’s dividend of 3.9% is on the lighter side, GHC is very stable and has a
strong track record of performance.
24 May 2016
Ardent Leisure (AAD.AX)
Investment Case:
AAD as it fits a number of our investment themes such as increased tourism and a
weaker Aussie dollar. AAD is taking a broader strategic decision to focus on its
entertainment portfolio, which has seen it recently announce its intention to sell its
marina assets. The proceeds from sale will be invested into its overseas expansion (US
Main Event Business). The US Main Event business has been seen as the jewel in the
crown of AAD’s businesses, and given our forecast or a lower AUD investment in the
United States makes sense.
Dividend:
AAD shares have been out of favour with the market in recent times, which has the
company’s share price retrace, and now offer a dividend yield of 6.6%.
Stock ratings
Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock. ’s analysts project a 6 to 12-month target share price for each
stock. The capital gain or loss implied by the 6 or 12-month target share price, along with the analyst’s projected prospective dividend yield, generates
the analyst’s projected total return for a given stock.
Based on a current 6 to 12- month view of total share-holder return (percentage change in share price from current price to projected target price plus
projected dividend yield), we recommend the following:
BUY: Based on a current 6 to 12-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 6 to 12-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 6 to 12-months out and, based on this time horizon, do not recommend either a Buy or Sell
This report may contain views, opinions, conclusions, estimates, recommendations and other information (Information). However, such Information
comprises general securities information only, and has not been prepared taking into account the particular investment objectives, financial situation
and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
their financial planner or advisor, the merits of each recommendation for their own specific circumstances.
Australasian Trading Management () has made every effort to ensure the reliability of the views and recommendations expressed in the reports
published on its websites. However, no warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions, recommendations
(which may change without notice) or other information contained in this document. research is based upon information known to us or which
was obtained from sources which we believed to be reliable and accurate at time of publication.
To the maximum extent permitted by law, (but, in respect of our members, subject to the applicable terms and conditions of our engagement with
them), and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or
consequential loss or damage) arising from the use of, or reliance on, any information contained in or omitted from this document, whether or not
caused by any negligent act or omission.
This communication is being furnished to you solely for your information and may not be copied or redistributed to any other person. It is provided on
the condition that you keep it confidential and do not copy or circulate it in whole or in part.
24 May 2016
