Your $10,000 on ASX – Return on Dividend versus Growth Stocks

  • May 29, 2020 AEST
  • Team Kalkine
Your $10,000 on ASX – Return on Dividend versus Growth Stocks

Summary

  • Recently, on 28 May 2020, there was a significant upward movement in the S&P/ASX 200 index, nearing the 6000 points mark with its gradual growth.
  • Flow of positive investor sentiments in the market are likely to attract more investors as market performance improves over time with reduced uncertainties.
  • Dividend-paying companies deferred/cancelled their dividend payments due to COVID-19.
  • Growth stocks recovering fairly with substantial growth seen in A2M, BUB, NEA and XRO.
  • Dividend stocks offer DRI to invest back into the business and cope with cash requirements in the business operations, expansion and growth.
  • Dividend-paying companies are posed to tough decision of survival vs shareholder satisfaction.

It was not long ago when the market was highly volatile wiping off huge sums of money, and investors failed to ride out the storm. However, the market seems to be picking up steam and investors are back in the saddle. The Australian benchmark index- S&P/ASX 200 gained 1.32% to reach 5,851.1 on 28 May 2020 and was nearing to surpass its 6000 mark.  On 29 May 2020, the same index was trading at 5785.2, declining by 1.13% (at AEST 12:03 PM).

Putting your money, say $10,000, on ASX appeared to be a tall order for the investors some time ago; however, investors can look forward to cutting the mustard from the current rally in the market without costing a pretty penny.

With investors looking to hit the ground running amid the positive sentiment flow in the market, they might end up in between a rock and a hard place while determining their investment in dividend or growth stocks.

Investors across the globe have been crunching the numbers to grease the wheels of their investment vehicles and betting the farm on their most lucrative investment option.

COVID-19 has given tough sledding to the global economy, and several dividend stocks were seen cancelling and deferring their dividend payments. Does this mean it is time for investors to pay more heed to growth stocks?

On the one hand, growth investing focuses on the future profitability of the company, leading to wealth creation for investors, while on the other hand, investors look up to dividend stocks for regular income streams. A requisite is to align the investment strategy needs with the objectives of the investor with a special focus on avoiding risk posed in tough times, currently put forward by COVID-19.

Growth stocks are generally no-dividend paying stocks that consider investing the surplus money in the growth and expansion of business while returning capital gains to the shareholders. Also, as dividend stocks pay a dividend to the shareholders, the shareholders have a choice of investing back their dividend into the business by acquiring additional shares in the company under a Dividend Reinvestment Plan (DRP).

Information technology player, Nearmap Ltd. (ASX:NEA) was the top gainer on ASX on 28 May 2020 with a growth of 16.667% intraday. In the last one month till 28 May 2020, the NEA stock had delivered 72.31% return to its shareholders, and the same had delivered 296.46% return to its shareholders in the last five years.

On 28 May 2020, the NEA stock settled at a price of $2.240. On 29 May 2020, NEA was trading at $2.21, down by 1.339% (at AEST 12:20 PM).

Another growth stock, The A2 Milk Company Limited (ASX:A2M) is a consumer staples stock on ASX that increased by 0.688% on 28 May 2020 and settled at a price of $ 17.550. On 29 May 2020, A2M was trading at $17.57, marginally up by 0.114% (at AEST 12:21PM) with a market cap of $12.98 billion.

As a growth stock, A2M stock has no annual dividend yield and has delivered 21.03% return to its shareholders in the last six months till 28 May 2020 and has delivered a return of 3634.04% over a period of last five years.

Another information technology growth stock, Xero Limited (ASX:XRO) increased by 0.354% intraday on 28 May 2020 to settle at $85.00. On 29 May 2020, XRO was trading at $85.71, up by 0.835% (at AEST 12:28 PM) with market capitalisation of $12.06 billion. The IT stock has grown by 39.18% in the last one year and has delivered 348.55% return to its shareholders in the last 5-year period.

Consumer staples player and infant milk manufacturer, Bubs Australia Limited (ASX:BUB) remained unchanged during the day’s trade on 28 May 2020 at a price of $ 1.070. On 29 May 2020, BUB was trading at $1.065, down by 0.467% (at AEST 12:30 PM).          

Over the last three months, BUB stock has increased by 63.36% and has delivered 1505% return to its shareholders over the last five years.

Let us look at some dividend stocks as well as their dividend reinvestment plans.

Telecom giant operating in Australia, Telstra Corporation Limited (ASX:TLS) has an annual dividend yield of 3.09% and had resolved to pay a fully franked interim dividend of 8 cents per share, constituting an ordinary interim dividend of 5 cents per share and a special interim dividend of 3 cents per share.

The Company had shared its dividend reinvestment plan priced at $3.5016. During the day’s trade on 28 May 2020, the TLS stock increased by 2.366% intraday to settle at a price of $3.245. On 29 May 2020, TLS was trading at $3.300, up by 1.852% (at AEST 12:35 PM) with a market capitalisation of $11.89 billion.

One of the largest companies in Australia, Wesfarmers Limited (ASX:WES) has an annual dividend yield of 3.75% and a PE multiple of 21.12x. Wesfarmers also declared a price of $37.8725 as the issue price for shares to be issued under the Dividend Investment Plan for the interim dividend of the half-year period ended 31 December 2019. The shares were scheduled to be issued on 31 March 2020 under the Dividend Investment Plan.

The WES stock rose by 0.271% intraday on 28 May 2020 and settled at a price of $40.750. On 29 May 2020, WES was trading at $40.32, down by 1.055% (at AEST 12:38 PM) with a market capitalisation of $46.2 billion.

Industrials sector player, Transurban Group (ASX:TCL) has an annual dividend yield of 4.19% and had announced a distribution totalling 31.0 cents per share to be paid for the six months ending 31 December 2019 comprising of:

  • A 29.0 cent distribution from Transurban Holding Trust and controlled entities
  • A 2.0 cent fully franked dividend from Transurban Holdings Limited and controlled entities.

 

Moreover, TCL had also restated its guidance for distributions to total 62.0 cents in FY2020, including the above interim distribution of 31 cents. Also, the dividend reinvestment plan of TCL was declared to operate for the distribution for the half-year ended 31 December 2019 with no discount to be applied while determining the price for issuing the securities under the DRP.

The TCL stock increased by 1.604% on 28 May 2020 and settled at $14.570. On 29 May 2020, TCL was trading at $14.355, decreasing by 1.476% (at AEST 12:42 PM) with a market capitalisation of $39.85 billion.

Information Technology stock, Wisetech Global Limited (ASX:WTC) has an annual dividend yield of 0.17% and had declared a fully franked interim dividend of 1.70 cents per share for 1H20, which was up by 13% on the previous dividend paid during 1H19.

On 18 March 2020, WTC announced a DRP price of $13.15 for its shareholders looking to participate in DRP. The WTC stock settled at a price of $ 21.060 with a market capitalisation of $ 7.14 billion. On 29 May 2020, WTC was trading at $20.98, down by 0.38% (at AEST 12:46 PM) with market capitalisation of $6.73 billion.

Bottomline

Currently, businesses are struggling to maintain their liquidity and robustness of the balance sheet and several dividend-paying companies have resorted to cancelling or deferring the dividend payments. Companies might be struggling to strike a hard bargain while choosing to survive or pay and satisfy their shareholders.  

(NOTE: Currency is reported in Australian Dollar unless stated otherwise)

 


Disclaimer
The website https://kalkinemedia.com/au is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform.

 

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