Are the Australian dividends sustainable?

 

The investors who have been investing in Australian market are expected to receive around $24 billion in dividends in coming months by the companies that reported their financial results in the recent earnings season, as per an estimate analysis by CommSec. Most of the companies (say over 92% of about 139) reporting their FY 16 earnings results, chose to pay a dividend while 82% of them either lifted or maintained their dividends. Listed companies are expected to pay out the dividend amount totaling $16.3 billion to their shareholders in the three weeks beginning September 19 2016. It has further been reported that nine of every 10 companies in the ASX 200 posted a profit for the year till June 2016. 72 companies of 139 recorded double-digit surge in statutory full-year net profit. In addition, dividend payouts totaled around $19 billion in the interim earnings season six months ago. Further, dividends were around $24 billion a year ago which is quite similar to this year’s scenario. This reflects a sign of sustainability to some extent.

Dividend Timeline (Source: CommSec)

Dividends payout highlights: Previous earnings season had proved encouraging and indicated the corporate Australia’s ability to deal with challenges associated with disinflation. In fact, 85% of the companies are making profit since 2010 and 80% of the firms from ASX 200 paid dividends while 80% have improved or maintained dividends. Technology sector contributed to this growth. Some of the entities who still pay out good dividends include Commonwealth Bank of Australia (CBA), Wesfarmers Ltd (WES), Suncorp Group Ltd (SUN) and Woolworths Ltd (WOW). CBA is to pay shareholders a final dividend of $2.22 (worth above $3.8 billion), WES would pay a fully franked final dividend of $0.95 (worth above $1 billion) while SUN and WOW may pay dividends worth a value above $400 million each.

Dividend Yields (Source: Reserve Bank of Australia)

Dividend policy highlights: Investors generally tend to receive dividend payments directly to their accounts. Accordingly, they can decide on what to do with the extra proceeds (decision among spending, saving and reinvesting into shares or other investments). Meanwhile, firms have to be able to sustain their dividend policy as the dividend payments should be at least maintained while enhancing them over time makes their shareholders happy. Accordingly, the firms need to maintain adequate cash for the reinvestment in the business and take up new opportunities like entering new markets or engaging in mergers and acquisitions. It is clearly seen that the corporate Australia is making money, while making efforts to enhance their cash balances. This enables firms to keep paying dividends to shareholders, which means the companies would continue to pay dividends going forward.

Better economic scenario in Australia against peers: The inflation and interest rates are far lower than a decade ago. The trends in inflation and interest rate have been below bar even before the global financial crisis (GFC), which reflected ageing populations across the developed world. The population growth has slowed or is even going backwards in some countries. In Australia, the population growth is still high as compared with other developed nations. Thus, the economic growth of 3.3% has been still above average. This is expected to enable companies to either sustain or improve their profits in the coming periods. Consequently, the shareholders may stand out to have a better chance to receive dividends.

Effect on stocks: The Australian cash rate is at 1.5% while the average dividend yield for listed companies has been reported to be about 4.2%. Better returns generally give the flexibility to the investors to put in more money into the markets. On the other hand, many macroeconomic factors play an important role in deciphering value through equities. For instance, the property market in Australia was considered to be otherwise decent given the stable residential and commercial property scenario till sometime back, so investors were opting for property over shares or cash. But, with supply overweighing the demand as several new homes are getting completed, softening of property price growth has been witnessed. The rental markets are already softening, resulting to the softening of total property returns. In contrast, the companies continue to make money. However, the higher profits do not all the time translate into high returns through share prices. Thus, investors should cautiously opt for the relevant sector and stocks so that they get to generate maximum returns while minimizing losses. The dividends add to the value of the stock and the returns.

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

 

 

What is ahead with the bank dividends?

 

Investors prefer high yield stocks after the Reserve Bank of Australia (RBA) cut Australia’s cash rate to a record low of 1.5% in August 2016. Australian stocks have been very good dividend players wherein 92% of 140 Australian companies reporting FY 16 earnings results chose to pay dividends while 82% of these companies lifted or maintained dividends. Companies that frank their dividends pay the corporate tax rate (some 30%) on their profit and distribute the remainder to shareholders.

Meanwhile, given the benefit of Australia’s imputation system, the big four banks – Australian and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac (WBC), all provide gross yields of between 6.5% to 10.3% (after tax credits) to Australian resident shareholders. The Commonwealth Bank of Australia would pay shareholders a final dividend of $2.22, which is worth more than $3.8 billion alone on September 29, 2016. Australian and New Zealand banking Group has a dividend yield of 6.71%, while NAB has a dividend yield of 7.4% (as of September 16, 2016). Westpac offers a dividend yield of 6.42%. On the other hand, under Basel III, the dividends are only deducted from regulatory capital in the quarter in which they are declared. This results in volatility in quarterly reported capital ratios. It has been said that the dividend payments should be adjusted to accrue evenly over the year, aligned with the profit generation in order to assess the underlying regulatory capital position.

Major Australian banks’ Additional Tier 1 (AT1) as % RWA (Source: ANZ reports)

But the recent volatility in the markets have hurt the banks’ stock prices which also impacts dividend yield. Australia’s banking sector has been facing new challenges given slowdown in mining, tough property market scenarios and deflation pressures. This is said to make the banks difficult to sustain dividend payouts. S&P in July 2016 had revised Australia’s Outlook to Negative with a similar impact on the outlook for the major Australian Banks’ ratings. Therefore, as a result of the change in Australia’s sovereign rating outlook, the rating outlooks for the Australian major banks have also been revised to “negative” from “stable”. But, the big four banks are undertaking efforts to meet the required minimum CET1 ratios of 8% by boosting their capital position. CET1, or common equity tier one, is how much top-quality equity banks are required to have as a proportion of their risk weighted assets. If the bank is not able to meet the required capital buffet, then the banks would decrease their dividend amount payable to the shareholders. There are market speculations that the banking regulator might bring in new restrictions forcing the banks to hold onto more of their earnings in the case when capital ratios drop to a certain point. The risk deepens during recession as banks experience softness in capital ratios during such time frames. The recent speech by the chairman of the Australian Prudential Regulation Authority, Wayne Byres has indicated that APRA may garnish 40% of a major bank’s earnings from being used for dividends, AT1 hybrid coupons, and/or staff bonuses in case CET1 capital ratio reaches a level below 8 per cent.

However, the inflation and interest rates are far lower than a decade ago. ANZ was seen to go in for an interim dividend cut as the first half profits fell 24%. In Australia, the population growth is still high compared with other developed nations. As a result the economic growth is still above average at 3.3 per cent as shown by the recent GDP figures. At the same time the inflation has suffered a blow. The headline rate of inflation stands at 1.0 per cent. Therefore, there is still a mix view on the sustainability of dividends by the banks.

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

 

 

 

Four key things behind secrets of stock selling

Selling stocks at the right price and right time helps you to gain returns and reduces the chance of incurring major losses. Any sell that results yield gain is a good sale. Investor’s usually struggle with greed or indecision for selling a stock. It happens that an investor sees price appreciation, he keeps a target of selling a stock when it reaches at a particular price point. But when the stock reaches to that price point, he expects further increase and decides to wait for selling the stock and the stock reverses its movement. He again keeps a target for particular price point but that never happens and stock keeps falling after which the investor loses his patience and finally sells the stock at a loss. What is the cause of loss? This is mainly due to the greed and fear factor, which plays an important role in a sell decision. An investor should focus on valuation and price. We suggest five things investor should keep in mind for stock selling to gain maximum.

Stock hits the price target: Every investor has a price target in mind when he buys any stock. This is particular price or range of price at which he wants to exit the stock. Each stock purchase should be based on the analysis of what stock is worth and purchase price should be at adequately discount to this estimated value.  When the stock reaches the target price or in the range of target price, the investor should sell the stock in order to lock in gains. For instance, Retail Food Group Limited (ASX: RFG) stock rallied 53.4% in last one year (as of September 09, 2016) and investors have started booking profits.

Deterioration in the fundamentals:  Monitoring an underlying business of the company is equally important. A deterioration in sales, profits margins, cash flow and other key fundamentals should be watched closely so that the fall in price can be guessed or anticipated to execute the sell. Frauds are again the more serious fundamental flaws.  Early to spot financial frauds would help investors to take action and gain before the stock sees a free fall in prices. Further, slowing of earnings-per-share growth without any new earning streams (new products or services etc.) may be one signal in this regard.

A better opportunity to own the other stock: Opportunity cost should be considered while executing sell decision. Opportunity cost is a benefit that could have been obtained by going with an alternative. It is wise to compare the stock with its potential gains among others. If alternative stock is better, then it is wise to take an exit from current holding and buy the other. A competitor that can be considered with equally compelling growth prospects and trades at lower valuations such as low price/earning ratio, low price / book value etc. may be a good opportunity.

Opportunities over a merger: At the time of a merger if the stock offers significant takeover premium then it may be wise to sell it, depending on other factors collectively. Sometimes the combined entity strengthens the fundamentals but one thing to keep in mind is that the deal may take a longer time for completion and thus the returns. Therefore, from an opportunity cost perspective it is wise to own the alternative investment opportunity with better upside potential.

In sum, valuing a stock would never be precise. Investor’s should rely on concept of margin of safety. Therefore, when one buys the stock, he has a target price or a particular value to that stock in mind. Therefore, it is advisable to sell the stock at that price point. Investors should not allow their emotion to influence the decision of selling stocks. Rather investor should use sound reasoning to decide when it comes to selling the stock. The focus should be on valuation and price.  A common sense strategy is to sell the stock as it rises to lock in gains over time. Remember, any sell that results into gain is a good sell. A good rule of thumb is to consider selling if company’s valuation becomes significantly higher than its peers. Another more reasonable tool is to sell the stock if its P/E ratio significantly exceeds its average P/E over the past five years or say ten years.

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

 

What key things should dividend investors be looking for?

 

Dividend income is secure income while investors with comparatively low risk appetite prefer dividend stocks in their portfolio. It is also a good investment from those who don’t want to watch the market every day and still want to secure their investments and make money. If anybody needs to park money for higher regular return, they can park their money into high dividend stocks. The key things that dividend investors can pay heed to –

Quality of business: Investment in high quality businesses gives comfort in terms of stability, growth and profitability. Investment into business that has strong history of solid growth enables companies to distribute profits by giving dividends. One should consider the dividend stocks by long-term earnings-per share growth or dividend growth. The constant dividend also typically indicates for quality of business growth.

Dividend consistency: Investors prefer companies with long dividend history in the rising trend. Invest in businesses that have higher income that help to ensure that dividends won’t be cut during business downturn. This can be easily analyzed by dividend payout ratios. The rise in dividend in a continuous manner is also a good indicator that company is growing and giving sustainable returns to the investors. One should look for such companies with strong fundamentals and growth records.

Frequency of paying dividend: If the stock reduces its dividend, it indicates that the business has lost its competitive advantage and reinvested the proceeds of the sale into more stable business. Additionally, if the frequency of dividend payout is not consistent, it may mean that the business is not stable. In good time the company is paying while in bad times it is unable to bring growth to distribute profit. Thus, the consistency in general is indicative of the stock being on growth radar.

Reinvestment of dividend: Investors can use reinvestment programs, which would allow them to reinvest dividends automatically without paying commission. With the passage of time, more capital is allocated to the business and dividend payout can continue to increase with growing business. The compounding makes big difference to your portfolio as we can see from following chart.

Region-wise Returns from Dividend Yields (Source: Financial Times and Société Générale)

Dividend payout ratio: Dividend payout ratio is also one of the important criteria, as higher the ratio means that the company is keeping minimum profits for reinvestment in the business for future growth. More than 100% indicate a concern as company is paying out of its current reserves.

Stability and cash flow: Some entities tend to generate high levels of cash like bank, consumer staple, utility and insurers. Such entities with volume sales tend to have a reputation for generating positive cash flows as compared with companies with small product portfolio. Further, the companies generating strong operating cash flow tend to distribute better dividends to investors as well as indicate a healthy picture from future growth perspective. Such companies are good investment bet from dividend perspective. Companies with decent portfolio of products and poor sales might not be able to generate cash flow as poor performance may be eating away cash flow of good product sales.

Identifying value: Identifying the value is very important. One can make greater return if one can invest for a longer period of time in stable companies that pay consistent dividends and raise those dividends on steady basis. This approach can yield greater return but identifying value is important.

Performance in recession: The performance of the company in the recession should also be considered. The real world data can help an investor find companies who are much less cyclical than others. Investors need to find such companies which are not much affected by recession and manage to reward investors by paying dividends.

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

How to assess dividend sustainability?

 

For an investor, dividend sustainability more important than mere high dividends given the long-term interests and benefits. This can be better understood from the following:

Understanding the dividend payout ratio: Dividend payout ratio is a key metric for investors as it represents a ratio of profit shared with shareholders. The balance of profit is kept in business to invest for future. The dividend payout ratio is one of the tools to anticipate or assess the dividend sustainability. In case of growing company, the ratio is very low or may be zero as company wants to invest more in business to grow but in the case of mature businesses the dividend payout ratio is generally high. Thus, the trend in payout ratio indicates the future dividend payout for the company. A steadily rising ratio could indicate a healthy business state or maturing business while a spiking dividend payout ratio sometimes may indicate that the dividend is heading into unsustainable territory. Many companies set a target for their payout ratios. They define it as a percentage of sustainable earnings or cash flow. Typically, companies with best long-term record of dividend payments have stable payout ratios over many years.

Consistency in dividend payment: Consistency in dividend payout is important as the same is indicative of company’s willingness to distribute profit to the shareholders. Sometimes the company pays more than 100% of their profits to reward their shareholders, which gradually might result into lower payout in coming years.

Trend for Dividends and Profits (Source: Reserve Bank of Australia)

Strong cash flows generally enable firms to give more dividends: Some companies generate good amount of cash flows over and above the need for reinvestments. Such companies pay dividend at a comparatively good rate. This may not be the case always. Healthy businesses are known to be associated with large amount of cash flows and earnings. The dividend amount should be covered by the amount of cash coming into business for looking at sustainability. As experts have analyzed, the dividend sustainability sits on the cash in hand instead of subjective earnings accrual number. Companies with high earnings but with low cash flow thus fail easily in terms of paying dividends while company with comparatively low earning but good cash flow will be able to pay high dividend. Cash flow may also be impacted by depreciation and non-cash charge against earnings. It has been seen that many capital-intensive companies like telecommunication companies, real estate investment trusts have low earnings but high cash flows.

Sources and Uses of Cash Flows (Source: Reserve Bank of Australia)

Free cash flow is a better indicator: Considering the flaws of cash flow, the better indicator is free cash flow which indicates for the cash flow available to pay out in dividends post the settlement of all other claims on the company’s cash flow. Good free cash flow generating companies would determine dividend sustainability. However, dividend sustainability on free cash flow doesn’t work for REIT and Master Limited Partnerships (MLPs). This is because their business models are based on constant and massive capital expenditure. The massive capex is funded by equity and debt issuance, which allows the business model to maintain the necessary cash inflows.

Cyclicality of business: Companies in cyclical sectors like resources and energy typically have lower payout since the earnings fluctuate considerably as per the economic cycles. In high price environment for commodities, the cash flow and earnings are high while with fall in commodity prices the profits as well as cash flow are poor, which is likely to take a dent on dividend. Best example is oil – oil companies are now suffering due to fall in prices, which also have pressurized their dividend payments.

Blue chip companies generally deliver better dividends: Blue chip companies often increase their dividends year after year with their steady earnings growth. Their payout ratio remains stable over extendable periods.  The healthy business growth year on year is a good indicator of rising profits and earning healthy cash flows. This is also an indicator of sustainable dividend payout.

Dividend payout from reserves: Dividend payout from reserves to inflate stock price is another strategy that has come into light. Sometimes, a company pays dividend out of their reserves and not from their earnings or healthy cash flows. However, this may be a dangerous sign and indicates that the dividends are unsustainable.

 

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Five reasons to stay positive about stocks

 

What would be the best investment; stocks, government securities or bonds? Most of the investors have this question, whether they should be investing in bonds or government securities to play a safe bet or invest in stocks for higher returns by taking a risk? An appropriate mix of investments should be based on time horizon, financial situation and tolerance for risk. Typically, for the longer investment horizon, the exposure to the stock is best option. Historically, the conservative mix has provided much less growth than a mix with more stocks owing to the following:

Surplus money over and above primary needs: When you have some extra money lying around, you can invest in stocks and wait to gain better returns. This is important, as you don’t burn through your earnings that quickly. While bonds and government securities give secured or assured returns, investment in stocks help you to create wealth but the key is stay invested and take profits at the right time. It has been proven that the investment in equity class gives you the maximum return, it however is also very risky asset group, as fall in the market erase your gains completely within a very short time. But by staying invested one may ride this downturn. For instance, Ainsworth Game Technology Limited (ASX: AGI) generated a 466.27% returns in the last five years (as of August 15, 2016). But the stock corrected over 17.54% in last one year due to challenging conditions across the globe impacting the stock, while again recovering over 8.29% in the last five days alone. Further, latest drops in interest rates and bond yields have worked well for gathering more momentum towards stock markets.

FTSE All-World Equity Index (Source: Financial Times)

Investment in stocks rewards dividend yield and capital gain: Investment in stocks helps you earn dividend which is your return on your investment while others reward that investor gets is capital gain through rise in value of your investments. A dividend yield, that is the dividend income you earn on your market investments while capital gains are gains due to the appreciation in value of your investments. Investing in companies with long dividend history is the rising trend. Investing in businesses that have higher income also helps to ensure that dividends won’t be cut during business downturn. Real world data can help an investor find companies, which are much less cyclical than others. Investors need to find such companies, which are not affected by recession and managed to pay returns through dividends.

Invest for long-term: The more time your money is invested, the more time it has to grow. One of the best way to invest for long term is to invest in stocks or stock mutual funds. The investment in stocks for long-term help you earn more than bonds despite the regular ups and downs in the market. It is not a constant straight line up for the whole timeframe. However, it has been observed that stocks have historically offered more potential for growth over the long term.

High yield being derived from stocks against the bank deposits (Source: ASX)

Withstanding in volatility is a key feature of stock investments: It is advisable not to panic when your stock is falling in values, or there is flow of bad news. From a long-term perspective, the current downfall might be meaningless as market does not move in one direction and there would be upswing in the market. What is generally believed is that one should use the low value or fall in stock value as opportunity to average its current holding or enter into defensive or blue chip companies, which over the time would be paid off. It may be painful time when stock prices are falling but the stock does not have one side movement.  The trend is going to reverse the current scenario and would start moving upward over a period of time. Of course, this goes without saying that the fundamentals and growth recovery has to be borne in mind for such stocks. Nonetheless, one should not panic and sell the falling stocks in haste. This is an opportunity to enter the strong growth stories stocks or average the current holdings of good companies.

Improving economic scenario: Australia’s business confidence has been resilient as per the latest data and the economy has also rebalanced itself from a mining-driven state. At the same time, Central banks’ efforts on monetary policies post-Brexit seem to have adjusted for some turbulence. These together have boosted the shares to some extent.

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Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Upcoming Dividends – 21/07/2016

What is a ‘Dividend’

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

What is a franking credit?

Franking Credits also known as Imputation Credits are a type of taxcredit that allows Australian Companies to pass on tax paid at the company level to shareholders. The benefits are these franking credits can be used to reduce income tax paid on dividends or potentially be received as a tax refund.

What is a fully franked dividend?

 A share dividend on which the company has already paid tax. This means shareholders are entitled to a credit for the amount of tax the company has already paid. This credit is known as an imputation credit or franking credit.

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Reasons Behind Good Performance Of Sirtex Medical and Emerchants

• Recent headwinds: SRX stock has been under pressure this year and declined by 33.77% during this year to date (as of March 29, 2016). This was mainly due to the lower than estimated dose sales by the group for the first half of 2016 which rose by 15.7% to 5,728 doses. The recovering Australian dollar against the US dollar also contributed to the stock decline. Then, the departure of Mike Mangano, the head of its Americas division also added to the decline.
• Positive Outlook: The group still maintained its positive outlook for dose sales for the full year of 2016 and expects an upper end of double digit rise.
• Recommendation: The recent correction in the stock this year placed them in oversold zone. Accordingly, the stock recovered over 4.6% on March 30, 2016. Given the group’s strong SIR-Spheres microspheres expertise coupled with its ongoing penetration, we reiterate our “BUY” recommendation on the stock at the current price of  $28.23   To read the complete report click here . To get your free report Click Here 

Are these Insurance Stocks holding any value?

Strong financial performance with guidance upgrade: FlexiGroup Limited (ASX: FXL) has completed the acquisition of Fisher & Paykel Finance from Fisher & Paykel Appliances in March 2016 and will be shortly increasing its FY16 cash net profit after tax (NPAT) guidance to include the earnings contribution from Fisher & Paykel Finance. Previously FXL had announced results for the six months ending December 31, 2015 with cash NPAT at $44.3 million, an increase of 4% over the first six months of FY15.
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MyState Ltd – Attractive Opportunity

Attractive opportunity: MyState Limited (ASX: MYS) announced good financial results for the half-year ended December 31, 2015 with net profit after tax (NPAT) of $15.1 million, an increase of 1.5% over previous corresponding period (pcp). MYS also announced an interim dividend of 14 cents per share, representing payout ratio of 81% in line with previous dividends. The company continued its strong growth in loan book, increasing by 6.6% from June 30, 2015 to reach $3.8 billion.To read the complete report click here . To get your free report Click Here