- Growth stocks represent companies with better than average increases in earnings, while value stocks represent companies whose stocks trade in the market at a price lesser than its book value.
- COVID-19 impacted Telstra Corporation’s FY20 results, but the Group continues to execute its T22 strategy to transform the Company by extending leadership in 5G and improving its productivity.
- Kathmandu Holdings underlying EBIDTA fell to $83.4 million for FY20 ($98.4 million in FY19), but the Group’s online sales grew by 96%.
- ANZ Banking Group Bank reported NPAT fell to $351 million for the June quarter from $391 million noted in the previous quarter due to COVID-19 impact.
Investors employ different strategies for gaining returns on investments. Growth and value investing are two fundamental approaches that can help investors in diversifying their portfolio, if used together.
Let’s have a look at how these investment styles work.
Growth investing is an investment made in stocks that have generated better than average gains and possesses the potential to generate high returns. They generally have a strong track record of earnings and are anticipated to perform sharply in future also.
However, they do carry the risk of an unexpected fall in the stock price due to negative earnings or any shock caused to a company.
ALSO READ: Lens over 3 NZX Value Stocks
Further, value investing refers to an investment approach where investors look for stocks trading for less than their intrinsic value. It captures two concepts of undervaluation and overvaluation.
A stock is considered as undervalued if it is trading at a value lower than its book value. In comparison, the stock is considered overvalued if it is trading at a value higher than its intrinsic value.
Benjamin Graham is recognised as ‘the father of value investing’ as he founded the approach of investing in stocks in the 1920s.
Central banks have been lowering interest rates worldwide for many years to accelerate their economies and counteract slow economic growth.
Low-interest rates generally support asset prices positively and increase investor demand for high-risk investments due to falling returns on their bank deposits.
Growth stocks generally perform better in a low-interest-rate environment when company earnings are rising. However, they can be badly affected when the economy is in a slowdown phase. Value stocks might perform well at the beginning of an economic recovery phase but are likely to fall back in a prolonged bull market.
Let’s have a look at the performance of 3 NZX listed stocks.
Telstra Corporation Ltd (NZX:TLS)
Telstra has a dividend yield of 5.62%. Telstra’s stock closed flat at $3.05 per share on 9 October 2020.
Telstra’s financial results for FY20, released on 13 August were in line with the guidance.
Some of the highlights of Telstra’s FY20 results ended 30 June are as following:
- On a reported basis, total Income for the year fell 5.9% to $26.2 billion, and NPAT dropped 14.4% to $1.8 billion.
- Telstra lowered its underlying fixed costs by 9.2% during the year, putting it on track to achieve its $2.5 billion net cost reduction target in FY22.
- The Board resolved to pay a fully franked final dividend of 8 cents per share, bringing the total dividend for FY20 to 16 cents per share.
- T22 enabled digital engagement with its customers grew significantly.
Telstra provided financial guidance for FY21 on a range of metrics given in the below figure.
Source: Telstra Retail shareholder meeting update, dated 15 September 2020
Telstra remains committed to complete its digitisation program and extend its leadership in 5G. It also continues to move closer to deliver $2.5 billion productivity target including $400 million in FY21. The Company is also bolstering its ties with Microsoft to improve IoT, AI and digital twin capability.
TO KNOW MORE, READ: Global tech major Microsoft strengthens its ties with Telstra
Kathmandu Holdings Limited (NZX:KMD)
The stock last traded at a P/E ratio of 11.98x and has dividend yield of 6.44%. Kathmandu Holdings share price closed at $1.28 on 9 October 2020, remaining flat on an intraday basis.
KMD’s profits were impacted by COVID-19 with an underlying EBIDTA of $83.4 million for FY20 ending 31 July 2020 compared to $98.4 million in FY19. However, the Group’s total sales rose to $801.5 million.
Some of the highlights of KMD’s results for 2020 included the following:
- Group’s online sales grew 96% on pcp from April to July 2020, posting a step-change in online penetration from 10% in FY19 to more than 18% of direct-to-consumer sales in FY20.
- Rip Curl’s (acquired last year) online sales grew by 115% on pcp from April to July, which contributed to an increase in the Group’s total sales.
- Net debt was reduced to $9.4 million at the FY20 year-end, due to $207 million capital raising, cost reductions and a temporary dividend suspension.
The Group has key strategic priorities for FY21 given in the below figure.
Australia and New Zealand Banking Group Limited (NZX:ANZ)
The stock has a dividend yield of 6.21%. ANZ share price ended at $20.13 per share on 9 October 2020, down by 0.05% on an intraday basis.
ANZ Bank New Zealand reported NPAT of $351 million for 3 months ended on 30 June 2020 ($391 million in March quarter), with credit impairment charges of $79 million for the quarter amid COVID-19.
Some of the highlights of ANZ’s results for Q3 2020 includes of the following:
- Credit impairment provisions increased by 8.4% to $838 million from $773 million, and total capital ratio rose to 14% in June end from 13.9%, as on 30 March 2020.
- KiwiSaver funds under management stood at $15.5 billion, as on 30 June 2020, up 10.7% since Q2 and up 4.7% from September last year.
- ANZ NZ provided financial support to more than 39,000 personal, home and business loan customers between 23 March 2020 and 31 July 2020.
- Fully franked interim dividend of AUD 25 cents per share with NZ imputation credits of 3 cents per share.
Further, on 1 September, ANZ completed the sale of its asset finance business in New Zealand, UDC Finance, to Shinsei Bank Limited. The transaction would give about 10bps of Level 2 Group CET1 capital that will further strengthen ANZ New Zealand’s balance sheet position.
The Group also released a presentation detailing on its ESG targets on 7 September.
(NOTE: Currency is reported in NZ Dollar unless stated otherwise)
The sole motive of an investor is to grow his/her capital over a period to meet financial goals. In pursuit of this, investors are in a constant hunt for stocks that have capital appreciation potential and those that pay dividends, which one can reinvest to further increase the rate of return. Dividends can also be seen as an incentive for an investor to hold the stock for a longer duration of time, especially when the overall market enters a bear phase, or the underlying invested company goes through business troughs and peaks.
Stocks that have high dividend yield are considered to be a safe bet, but to take a blanket call just on dividend yield would be naive, as there is more to be analyzed to make a sound judgment on the ability of the business to keep paying a dividend over long periods.
Companies over time, increase dividend payout, and in the long term, an astute investor can reap high rewards by picking good dividend stocks, across sectors, thus diversifying and reducing the volatility of one’s portfolio. Investors in New Zealand can reap the benefit of dividend imputation credit and further increase their overall return on investment.
So, how should one pick a dividend stock? How to invest in stocks that have the wherewithal to not only pay a dividend but also increase dividend payout over the years?
With Kalkine, you will find answers to these questions, as we conduct a detailed analysis of companies based on quantitative and qualitative parameters.
Sound dividend stocks are investors' delight. They provide the benefits of capital appreciation and the joy of constant income despite the market volatility.