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Dividend Stocks to Beef Up Portfolio Amidst Low-Interest Rate Regime

  • June 05, 2020 09:31 PM AEST
  • Kunal Sawhney
    CEO Kunal Sawhney
    2285 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Dividend Stocks to Beef Up Portfolio Amidst Low-Interest Rate Regime

Summary

  • Currently, markets are in a roller coaster ride due to coronavirus-led impacts and a looming Global Virus Crisis (GVC) threat
  • Parking funds in high dividend yield stocks is often a lucrative way of safeguarding one’s investment in case of low capital appreciation, as it offers consistent income
  • High dividend yield stocks with sound balance sheet that have consistently paid dividends in the past are considered attractive in wake of uncertainties & falling interest rate
  • Dividends paid by Australian listed companies have significantly risen (~40% between 2010 and 2015) since the Global Financial Crisis (GFC) alongside modest growth in earnings
Gold MTF non-AMP

Dividend growth has been one of the investing staples for a long period of time. However, COVID-19-led market downturn saw dozens of companies announcing dividend payment cancellations or cuts. Unfortunately, the pandemic was at its peak during the reporting season wherein majority of companies tend to announce and distribute dividend.

But not everything is a tall order-high-dividend stocks seem to be a safe bet when uncertainty prevails. Moreover, the globe is witnessing a low-interest rate regime and high volatility in equity markets, and there has been a sharp drop in bond yields- which illustrate that high dividend-yielding stocks could be sitting on a gold mine. Firstly, because they usually do not get into a free fall and secondly, they tend to outperform often.

Experts opine that investing in high dividend-yield paying companies that demonstrate strong fundamentals, are long-term oriented and have healthy cash reserves can cushion investors’ portfolios.

In Australia, consistent with increase in dividend payments, dividend payout ratio rose in the recent past. In 2015, highest level was reached in over a decade.

In this backdrop and acknowledging the fact that Australian companies' dividends are high by international standards, let us look at 3 stocks that have a decent annual dividend yield.

Let us now cast an eye on recent developments of these companies.

Southern Cross Media Group: $169Mn Equity Raising Completion and Trading Update

On 6 May 2020, Southern Cross Media Group Limited (ASX:SXL), one of Australia’s leading media companies reaching over 95% of the population via its radio, television and digital assets, announced to have successfully completed a fully underwritten equity raising. The Company raised ~ $169 million before transaction costs. Macquarie Capital (Australia) Limited enacted Lead Manager and Underwriter of the equity raising.

The equity raising comprised of a placement as well as a 1.75 for 1 accelerated pro-rata non-renounceable entitlement offer of fully paid ordinary shares.

Besides this, the Company attained positive EBITDA in April 2020 with revenue declines partially offset by operating cost reductions. SXL deems itself to be eligible for the JobKeeper Allowance for ~ 1,750 of its employees. This subsidy was included in the operating cost reductions for April. The EBITDA less capex was noted at breakeven for the month.

Bank of Queensland: Interim Dividend Deferred, Well-Capitalised & Good Liquidity Position Maintained

After market close on 5 June 2020, ASX settled the day in green at 5,998.7, as the big four banks greased the oils, resulting in a week of solid market gains. Enjoying one of the best gains was Bank of Queensland Limited (ASX:BOQ)-the second top gainer of the day.

In mid-April, the Bank decided to defer payment of the FY20 interim dividend, owing to an uncertain economic outlook. Meanwhile, the Bank conducted early stress testing of the business against a range of potential future economic scenarios as deemed apt to adhere with APRA’s guidance till the uncertain outlook for the Australian economy and credit cycle prevails.

However, the Bank remains well capitalised with a good liquidity position and sound asset quality. Moreover, its intent to pay dividends remains unchanged though it is subject to completing the stress testing review with APRA, regulatory constraints, and regaining confidence that the strong capital buffer will suffice an extreme downside scenario.

The Bank also notified that if it resolves to pay an interim dividend, the payout ratio is expected to be lower than the previously disclosed target range of 70-80%, which seems to be a sensible approach along with other capital management initiative that would be required to maintain strong capital position.

Flight Centre Travel Group: Sells HO, Completes Entitlement Offer, On Track to Attain Targets

One of the world’s largest travel agency groups with a total of 2,800 businesses, Flight Centre Travel Group (ASX:FLT) sold its Melbourne head office property in a $62.15 million deal to Shakespeare Property Group in May 2020. The transaction is likely to conclude in July.

Right before announcing this, FLT had updated that at the back of strong support, the Company successfully completed the retail component of its 1 for 1.74 accelerated pro rata non-renounceable entitlement offer of new fully paid ordinary shares, raising a total of $138 million at $7.20 per New Share. Total amount under the offer, raised with institutional placement and institutional component of Entitlement Offer, stood at ~ $700 million.

Proceeds raised will be used to bolster balance sheet, liquidity position and ensuring that the Company can trade through uncertainty and dislocation across the travel sector.

The Company has been progressing towards its cost reduction strategies and financial targets. It has been reportedly making momentous progress in plummeting its global cost base towards the $65 million (per month) target by the end of July. Cost reductions are expected to be applied with less than the $210 million in one-off costs (originally predicted). The TTV tracking was at ~5-10% of normal levels in April.

FLT has secured a €4.5 million government loan in France, while wage subsidies flowing from Australia’s JobKeeper program are an option, and the Company has been advised that it is eligible for a government-backed loan facility in the UK as well.

With steady progress for businesses, constant vigilance being practiced along with the “new normal”, flattening of the curve reported and economies starting to reopen, the stock market blow of 2020 seems to be getting behind. Stocks have been in action, consequently opening an opportunity for investors to look at top dividend-paying names that are currently at enticing levels in an interest regime that has been at low levels prior to the pandemic.

(Note: Currency denoted in AUD unless otherwise specified)

 

 


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