Amidst the looming uncertainties in the international business environment, due to the devastating bushfire in Australia, the US-Iran political tensions, and the trade war between the US and China, the investors might be a little worried for the dividend this year.
Many companies have slashed earnings guidance and reduced their revenue due to the not so favourable outlook given the situation in the global scenario. Adding to the worry of the investors is the recent outbreak of coronavirus in China, which has left the Chinese economy to plunge and impact the international economy as well.
The back to back events of crisis in the international environment have had a severe impact on the domestic economies in just the beginning of the year 2020. The slashed earnings guidance by companies can be a sign for the investors to revisit their dividend expectations.
Investment in the right dividend stocks can help the investors maintain steady stream of dividend through the year 2020. The declining interest rates across the globe add to the luring nature of investment in dividend stocks.
As announced in October 2019, the interest rates in Australia are maintained at record low levels of 0.75%. In this regard, the dividend stocks can turn out to be an appealing investment opportunity for the investors in the current scenario.
Based on the investors’ objective of investment, investors can choose to invest in fundamentally good stocks. One of the strategies of the investor to earn healthy dividend-is to invest in companies with strong payout ratio.
Investors invest in dividend-paying stocks for several reasons, out of which some of the prominent and most relatable reasons for investing in dividend-paying stocks can be:
- Regular stream of income
An investor holding the dividend stocks for a longer period of time has the advantage of earning significant capital gains from the investment along with the dividend paid by the company. The company distributes a part of their earnings to its shareholders in the form of dividends and these dividends paid by the company ensures the regular flow of income for the investors.
New Hope Corporation Limited (ASX:NHC)
South East QLD based New Hope Group is an Australian managed entity, and some of its operations encompass:
- coal mining,
- port operation,
This company is currently trading at an annual dividend yield of 9.04% as at 30 January 2020 prices, and it recently paid dividend of 9 cents. Also, NHC has consistently paid and increased dividends in the past few years as shown in the image below:
The company’s financials for the past year are as follows:
- FY19 has been a year of record profit before non-regular items with a 3% increase on the previous year with Profit Before Tax and non-regular items being $384 million;
- Net Profit After Tax before non-regular items was $268 million whilst Net Profit After Tax after non-regular items was $211 million;
- full year dividends totalled 17 cents per share fully franked which is up 21% on the previous financial year;
The company’s unaudited summary financial results for the first quarter shows a 51% decrease in the net profit after tax before non-regular items primarily driven by a drop in the thermal coal price of 40% over the past year.
The NHC stock was last noted trading at a price of $1.860, with a market capitalisation of $ 1.56 billion. Also, the stock was trading at a PE multiple of 7.420x, as on 30 January 2020.
- Safer Investment
It’s a misnomer to assume dividend stocks are safe for investment. However, to a certain degree it is true, ability to pay dividend reflects strong fundamentals of the business along with efficiency in its business processes. If a business is making losses, then it cannot pay dividends. Therefore, an investor would prefer to make an investment in a profit-making business.
Dividend stocks are less volatile and relatively considered safe. For instance, Harvey Norman Holdings Limited (ASX:HVN) a consumer discretionary sector player listed on ASX, has delivered 23% returns to shareholders with less volatility in its stock price. Further, it has a healthy annual dividend yield of 7.69% as at 30 January 2020 prices.
The following chart depicts the YTD return of HVN:
The stock closed the day’s trade on 30 January 2020 at a price of $ 4.250, down by 0.932% with a market capitalisation of $ 5.35 billion. Moreover, the stock inched closer to its 52-weeks high price of $4.667.
Financial Achievements of HVN for the FY2019 are as follows:
- 4% increase in Reported Profit Before Tax (PBT) to $574.56 million;
- Robust Net Assets of $3 2 billion Robust Net Assets of $3.2 billion, a substantial 8 8% increase from the previous year;
- 5% increase in Earnings Per Share (EPS) 4.5% increase in Earnings Per Share (EPS) to 34 70 cents;
- Better Option for Investment
The stocks with good dividend yield are considered good for investing, although a lot depends on the current interest rate and prevailing market conditions that could adversely affect the dividend payout capacity of the business. As seen from the past trends, the high dividend yielding stocks could underperform in situations when the interest is rising and vice versa. Currently, interest rates are very low in Australia.
Now, we shall discuss some of the dividend-paying stocks listed on ASX and their financial position.
Alumina Limited (ASX:AWC)
As a metals and mining player, Alumina Limited is engaged in mining of bauxite, refining alumina and deals in alumina-based chemicals and aluminium smelting operations. The Company has 40% ownership of Alcoa World Alumina & Chemicals (AWAC), and the remaining Of AWAC is owned and managed by Alcoa.
Alumina Limited has an annual dividend yield of 11.71% as at 30 January 2020 prices. and recently paid a dividend of 6.529 cents per share.
Major financial highlights from Alumina’s performance during the half-year 2019
- For the half-year ended 30 June 2019, Alumina limited reported a statutory net profit after tax of US$210.9 million;
- A fully franked interim dividend of 4.4 US cents per share declared by the company;
- EBITDA of USD 949.9 million, a decrease of USD 258.1 million;
- Net cash inflows of USD 382.4 million, a decrease of USD 278.1 million;
At the market close on 30 January 2020, the AWC stock was last noted trading at a price of $ 2.180 with a market capitalisation of $6.42 billion. The stock has PE multiple of 7.870x.
Westpac Banking Corporation (ASX:WBC)
Being Australia’s first bank and oldest company, the business was established in the year 1817 as the Bank of New South Wales, and the name of the company was changed to Westpac Banking Corporation in 1982. The bank has performed a crucial role in the economic and social structure of Australia and envisions to be one of the great service companies globally, through the growth and prosperity of its customers and society.
The WBC stock has an annual dividend yield of 6.91% as at 30 January 2020 prices and had most recently paid a dividend of 80 cents.
Some of the financial highlights for the company are as follows:
- The net profit attributable to owners of Westpac Banking Corporation for 2019 was $6,784 million;
- Net interest income increased $402 million or 2% compared to 2018 driven by an increase of $686 million due to the reclassification of line fees from net fee income to interest income;
- Net fee income decreased $769 million or 32% compared to 2018 primarily due to the reclassification of line fees to net interest income;
- Net wealth management and insurance income decreased $1,032 million or 50% compared to 2018;
- Trading income decreased $16 million or 2% compared to 2018;
On 30 January 2020, the WBC stock last traded at a price of $25.310, up by 0.476% with a market capitalisation of $ 90.98 billion
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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.