More top dividend-paying stocks
by Peter Switzer
Of course there are lots of answers, but the safe yet wealth-building one is to go for big quality names with a history of paying dividends.
When America’s greatest investor, Warren Buffett, thought it was time to buy a railway, it could have been the time for us to buy businesses with a solid future and past which tells us they pay dividends.
Long track record
Yesterday when I wrote about the dividend paying stocks the guys at Lincoln Indicators liked, I made the point that when you look at the very long-run track record of any accumulation index of shares, around 50 per cent of the total return comes from dividends. It’s the reliable, Honest John aspect of shares but you have to get the brands or businesses that you can trust to deliver.
The Lincoln team’s picks were based on the health of the company analysis they do and it doesn’t discriminate against small over big. However, at the moment there are quite a lot of analysts who keep saying for now, buy the big names that pay dividends. This possibly has more relevance in the USA because there are a lot more companies and some of the big names — such as Citigroup, Bank of America, GE, GM and others — have been at the core of the Yanks’ financial and economic problems.
That said, I love great dividend-paying brand names for most investors as most people are not thrill seekers and just want to beat bank interest returns consistently. Of course they’d love 13 to 15 per cent returns all of the time but if we can do nine to 10 per cent on a very regular basis, well that’s OK.
In fact, it’s bloody brilliant but most people don’t know that.
- Telstra: “All the bad news is in the share price,” Geddes says. The yield is nine per cent fully franked but the adviser in me says there are still some question marks over its future. However, I still lean to the positive on the stock.
- Geddes made it easy by next recommending “all of the big four banks”. He says buying them now might not be as rewarding as waiting for a correction next year but that’s a timing gamble you have to weigh up. The banks yield between 4.4 per cent and five per cent if you want a ballpark figure.
- Westfield is on an eight per cent yield and Geddes thinks the company will be very opportunistic over the next few years overseas with the GFC creating lots of value for the biggest shopping mall business in the world!
- QBE: This great insurance business run by one of the best CEOs in the country, Frank O’Halloran, yields 5.6 per cent. Geddes says its share price has been affected by the rising Aussie dollar, which reduces its overseas earnings. A great long-term hold.
- Ardent Leisure: Once called Macquarie Leisure but the management has been internalised and it owns the likes of Dreamworld on the Gold Coast. It yields around 11 per cent.
- Astro Japan Property: This is the re-named Babcock & Brown Japan Property Trust — the phoenix from the ashes. Geddes likes the CEO and the assets and is yielding 15 to 20 per cent. Note, there’s some gearing but the interest cover is OK says Geddes.
- Duet: a diversified utility energy trust which yields 10 to 11 per cent and Geddes thinks it will do well over time.
Among those, you have the bluest of blue chips and some interesting not-so-well-knowns. It gets down to your selection but always remember when the return goes higher, often so does the risk. However, the better the name the more likely it is that you can dilute the risk.
Finally, with investing, when you have a strong reliance on blue chips you make it harder to make a blue you will regret. Good luck!
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.
Published on: Thursday, November 26, 2009blog comments powered by Disqus