Interest rates across the world have witnessed a dip over the past few days. The German 10-year Bond yield had a record low of approximately a negative 0.3% (As on 18 June 2019). In Europe, the Italian 10-year government bond yield touched their lowest level of the year yesterday by falling to 2.106%, while US 10-Year Bond Yield touched a low of 2.016%.
Interest rates in Australia:
In Australia, the RBA recently reduced its interest rate and market experts expect that it is likely to decrease over the next few months. In a typical economic scenario, as the interest rates fall, share prices tend to go up, which is luring investors to turn towards equity markets. However, market participants must be vigilant enough to scrutinise the value and understand the fundamentals that they would derive from the investment.
In this lower interest rate regime, a noticeable trend has been observed with investors chasing riskier assets that offer stable and reliable dividends. The Australian share market, though not amongst the most expensive in the world, has been in the limelight for generating great returns even in times of tumbling interest rates, housing slump, federal election disturbance and global trade concerns. The stocks on ASX have proven to be amongst the best-performing global stocks of the year.
The Australian share market is about 2.5% of the total market cap of the world’s share market.
As per recent market research, the ASX 200 one-year forward dividend yield is almost 4.5%, only second to the FTSE 100 of the UK. The study also stated that the total pay-out ratio of ASX 200 is impressive 77%.
On the slight flip side, investors need to keep a check on their positioning and not just focus on better earnings outlooks, which might flip if the fundamentals attain dominant position.
Few stocks to look out for:
Based on their investor returns, the below few stocks, listed on ASX, seem to be an attractive option for investors:
- Arena REIT No 1 (ASX: ARF)
- Goodman Group (ASX: GMG)
- Naos Emerging Opportunities Company Ltd (ASX: NCC)
- Pendal Group Ltd (ASX: PDL)
- GUD Holdings Limited (ASX: GUD)
- Stockland (ASX: SGP)
- Woodside Petroleum (ASX: WPL)
Stock Returns for last 3 months (Source: Thomson Reuters)
BHP Group Limited
Company profile: A major player of the metals and mining space, BHP Group Limited (ASX: BHP) is into mineral exploration, production and processing and hydrocarbon exploration, production and refining.
Stock Performance and Dividend payout: The company’s stock has depicted a consistent growth in its dividend yield in the past 4 years. The company recently paid a full franked ordinary dividend of US$0.55 (A$0.78) for the period of six months on 26 March 2019.
BHP’s dividend history (Source: ASX)
The stock settled the day’s trade at A$40.980, up by 2.04% with a market cap of A$118.31 billion. It has generated returns of 5.10%, 8.60% and 25.03% in the last one, three and six months, respectively. At the time of writing on 19th June 2019, the stock’s P/E ratio is 27.480x and the annual dividend yield is 4.15%. The EPS of the stock is A$1.46.
Return to shareholders: As announced by the company at the Global Metals, Mining and Steel conference on 14th May 2019, it had announced more than $25 billion cash returns to shareholders since 1st January 2016. The company is expecting almost 17% return from its longer-term opportunities.
Australia and New Zealand Banking Group Limited
Company profile: A financial group and provider of banking and financial products and services, the Australia and New Zealand Banking Group Limited (ASX: ANZ) caters to both individuals and business customers.
Stock Performance and Dividend Pay-out: The company’s stock has depicted a consistent dividend yield in the past 4 years, although with a dip in 2019. The company recently announced an ordinary dividend (fully franked) of A$0.80 for the period of six months on 26 March 2019 with a DRP price of A$27.79.
ANZ’s dividend history (Source: ASX)
At the close of market trading on 19 June 2019, the stock was trading at A$28.670, up by 1.38% with a market cap of A$80.12 billion. It has generated returns of 1.51%, 7.08% and 19.38% in the last one, three and six months, respectively. At the time of writing on 19th June 2019, the stock’s P/E ratio is 12.910x and the annual dividend yield is 5.66%. The EPS of the stock is A$2.191.
Return to shareholders: As per the half yearly report presented by the company on 2nd May 2019, the company stated that there had been an increase in the EPS by 5% on PCP and the ROE was recorded as 12%. The NTA per share had increased by 4%.
The company had also mentioned that it plans to neutralise the impact of shares under DRP on market for the interim dividend of FY19, and had appointed UBS AG, Australia Branch for the on-market share purchase of ~$234 million.
Fortescue Metals Limited
Company profile: Popular in the metals and mining sector, the Fortescue Metals Group Limited (ASX: FMG) is into the mining, processing and transporting of iron ore. It is known for its project in the Pilbara region of Western Australia.
Stock Performance and Dividend Pay-out: The company’s stock has depicted a fluctuating but good dividend yield in the past 4 years. At the time of writing on 19th June 2019, the stock’s P/E ratio is 21.550x and the annual dividend yield is 3.64%. The EPS of the stock is A$0.395.
FMG’s dividend history (Source: ASX)
The stock was trading at A$8.760, up by 2.82% with a market cap of A$26.23 billion at the end of market trading on 19 June 2019. It has generated returns of (0.99%), 33.65% and 125.45% in the last one, three and six months, respectively.
FY Dividend Pay-outs: On 14th May 2019, the company announced an issue of special dividend of A$0.60 per share (fully franked) which was paid on 14 June 2019. This totalled the FY-19 till date dividend to A$0.90 per share (A$0.19 interim dividend and A$0.11 special dividend in February). Further on 30th May, the company announced the DRP price of A$8.37980 under Dividend Reinvestment Plan, to be payable on 14th June 2019.
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