02 9683 5999When investing it is important to stand back and look at the bigger picture. We invest in growth assets for capital growth and importantly a growing income stream.
In August most listed companies reported their FY 12 results. CHEAP The reporting season was reasonable with results generally better than the markets low expectations. The stocks in our portfolio grew their dividends by 10.39% in the past year. Based on consensus estimates the dividends on these stocks are forecast to grow, on average, by 8.26% over the next year.
At the time of writing the gross yield on our typical portfolio over the coming 12 months is forecast to be approximately 6.19% (5.64% + franking- fees).
Chart 1 shows the projected growth in income from $500,000 invested in this portfolio as at today. This forecast growth is based on historical growth (last 3 years, excluding higher growth rates prior to 2008) rates and consensus forecasts. If dividends are re-invested the income the portfolio generates in Year 9 is forecast to be approximately $82,000 (dark grey line). The white line represents income if dividends are withdrawn.
The light grey (reinvested) and red line (withdrawn) are comparisons if the funds are invested in fixed interest at prevailing rates of approximately 5%. There is the likelihood of further cuts to deposit rates.
On a historical basis quality Australian high yielding industrial stocks continue to look cheap, relative to term deposit. See Chart 2 as an example A number of these stocks have recently made yearly and multi year highs.
The uncertain global environment and high term deposit rates has been the main driver of the ongoing shift to cash over the past 3 plus years. As term deposits rates decline, dividend yields become more attractive.
To maximise current market opportunities, we continue to invest in high quality companies that have sustainable dividend yields. It is important to remember that despite daily share price fluctuations these companies continue to grow both their earnings and dividends.
If you would like to discuss any of the information covered please do not hesitate to call me on 02 9683 5999.
