Building Income and Growth Portfolios

  • Jan 18, 2020 AEDT
  • Team Kalkine
Building Income and Growth Portfolios

An investor can achieve success by maintaining a well-diversified portfolio in the era of diversified financial markets. Being an investor, an individual should be well versed with the allocation of capital in the upcoming period to neutralize the risks and achieve goals. Moreover, having a diversified portfolio also provides an investor with opportunities for hedging the risks emanating from financial markets. Also, every investor has different motive behind making an investment as one may need appreciation of invested capital within a short span of time while the other may have patience for holding on to an investment for a long term in order to enjoy returns in the form of considerable appreciation of the same. When it comes to the building a portfolio, the following could be understood as steps for building up the portfolio:

  • At first, an investor is required to choose the asset classes for investment.
  • Segregate the amount of investment among the asset classes.
  • Monitor portfolio on a periodically basis and make changes in asset allocation over time

Income and Growth motive in a portfolio could be taken as an objective behind the investment. For the short-term investor an income stock can be proven to be a better option for investment, while for a long-term investor investing in growth stock is likely to be a better option. Moreover, the income generated form the investment in income stock can be re-invested in a growth stock in order to make a transition to into a long-term investment.

What are Income Stocks?

Under the category of income stocks, the equities which makes payment of regular dividend or increasing dividend on a regular basis can be accounted for. These stocks generally possess higher dividend yields, which might help the stock to generate a decent return. Though, there is no exact clarification on the volatility front, many of the income stocks possesses lower levels of volatility as compared to the overall volatility of the stock market. There are some sectors which churn out most of the income stocks such as REIT, Energy and utilities etc.

What are Growth Stocks?

Growth stocks are those stocks, which have consistent topline and bottom line growth over a span of time. Those companies which report substantial positive cash flows during an extended period could also fall under the growth category. Moreover, it is expected that the company would be delivering a sustained growth in its revenues as well as earnings. Then only that company would be preferred as a prospective investment from growth perspective.

In order to have the deeper understanding of income and growth stocks, we will now look at some of ASX-Listed companies, which fall under the category of income and growth, respectively.

As examples of Income stocks, we will now look at Southern Cross Media Limited (ASX: SXL) and Whitehaven Coal Limited (ASX: WHC).

Southern Cross Media Group Limited

Southern Cross Media Group Limited (ASX: SXL) is involved in the creation as well as broadcasting of content on online media platforms, free-to-air commercial radio and TVs throughout Australia. The company recently announced that the refinancing of its syndicated debt facility for a further period of 3-years has been successfully negotiated. It added that the new facilities would comprise a three-year revolving facility amounting to $435 million and a one-year revolving facility, which amounted to $25 million. The proceeds would be utilized towards making payment of the existing drawn debt amounting to $325m as well as to provide financial flexibility for supporting the business in future.

On the financial front, the company reported revenue amounting to $660.1 million in FY19, reflecting the growth of 0.5% as compared to the previous year even with the tough advertising markets. The underlying EBITDA amounted to $159.9 million with a growth of 0.9% and underlying net profit after tax stood at $76.2 million indicating a growth of 3.1%. These results have been underpinned by a disciplined cost control.

Moreover, the Board of the company paid fully franked dividends amounting to 7.75 cents per share. At the current market price of A$0.910 per share, the annual Dividend yield of the company stood at 8.42%.

At the close of trading day on 17th January 2020, the stock of SXL last traded at A$0.910 per share with a fall of 1.087%.

Whitehaven Coal Limited

Whitehaven Coal Limited (ASX: WHC) is engaged in the exploration and mining of coal. For FY19, the company reported sales revenue amounting to $2,487.9 million with a rise of 10% and underlying EBITDA came in at an increase of 3% and the figure stood at $1,041.7 million. The company declared a dividend amounting to 30 cps, comprised of an ordinary dividend of 13 cps, franked to fifty percent and a special dividend of 17 cents per share, unfranked.

Recently, the company has announced that the acquisition of EDF Trading Australia Pty Limited has been wrapped up. EDF Trading Australia Pty Limited owns a 7.5% interest in the Narrabri underground mine. By the acquisition, the company has been able to increase the ownership interest in the mine to 77.5%.

At the close of trading day on 17th January 2020, the stock of WHC last traded at A$2.610 per share with a rise of 0.772%.

Let us now have a look at some of the growth stocks such as OneVue Holdings Limited (ASX: OVH) and Freedom Foods Group Limited (ASX: FNP).

OneVue Holdings Limited

OneVue Holdings Limited (ASX: OVH) happens to be a wholesale service provider to the wealth management industry. Business of OneVue has got stronger in FY19, when the revenues of the company experienced a rise of 35%. The fund services and platform services reflected 64% and 46% of total revenues. Moreover, 93% of revenue is recurring revenue which underscores the quality of its revenues. The company also stated that the simplification of its business model as well as the sharpening of its focus on the core businesses, Fund Services and Platform Services, would enable it to focus on continuing to grow the business organically and by acquisitions as well.

Also, during Q1 FY20, in managed fund administration the company has processed Record number of items, 173,687, with a rise of 44% as compared to prior corresponding period with growth fueled by new funds added and ongoing growth from existing funds.

At the close of trading day on 17th January 2020, the stock of OVH last traded at A$0.375 per share with a rise of 1.351%.

Freedom Foods Group Limited

Freedom Foods Group Limited (ASX: FNP) is involved in manufacturing, souring ,selling, distribution and marketing of a variety of cereals, snacks as well as dairy and plant beverages. The company experienced a growth of 34.9% in net sales and the figure stood at $476.2 million in FY19. The operating net profit witnessed a surge of 40.1% and amounted to $21.9 million. The group continues to achieve high growth with the help of key brands, including Australia’s Own and Freedom Foods in retail and MilkLab in out of home channels, in the key markets of Australia, SE Asia and China. Final dividend for FY19 amounted to 3.25 cents per share. FNP is well positioned for developing into a major global food as well as beverage business with scale in key food and beverage platforms.

The Group continues to witness robust demand throughout its business activities in Australia, China as well as SE Asia. This is reflected in a growth of demand for dairy, plant-based beverage and cereal and snacks. This indicates the favorable impacts on the company’s expanded operational footprint as well as increasing brand penetration and market share in key strategic channels and categories in Australia, SE Asia and China.

At the close of trading day on 17th January 2020, the stock of FNP last traded at A$5.180 per share with a rise of 1.172%.

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