Is there an ETF that pays a higher dividend than Australian Foundation? What do the brokers say now about CSL? With small caps expected to do better, is there an easy way to follow how the small cap indices are performing? Why does BHP pay its dividends in US dollars?
Question 1: I’ve had over 10,000 units in Australian Foundation (AFI) for a long time. Is there a share or ETF that would pay me better dividends?
Answer: Australian Foundation (AFI), which is Australia’s biggest listed investment company and possibly the oldest, has been an underperformer in recent times. For the year to July, their return (including franking) was 7.6% compared to the index return of 13%. Over 3 years, it is 11.6% pa compared to the index of 13.8% pa. Over longer periods, it is better – 10 years is 9.2% pa compared to the index of 10.1% pa.
But they have also been smashed on the share market. The discount to NTA (net tangible asset value) has blown out to a record level. On 15 August, this stood at 11.9% (NTA of $8.43, ASX price of $7.43).
In regard to dividend yield, they are largely paying the market. Current dividend is 31.5 cents, prospective yield on a $7.39 share price is 4.2% (fully franked).
For a broad-based market investment such as an ETF, you won’t find materially higher yields. If you want a higher yield, you will need to buy individual stocks, which involves a whole different risk paradigm.
I wouldn’t be a seller of AFI when they’re trading at such a big discount.
Question 2: CSL has been absolutely smashed this week. The brokers have been quite bullish and now look to be wrong. Are they still bullish?
Answer: Unsurprisingly, most brokers reduced their target prices. This is because they cut their EPS (profit) forecasts for FY26 and FY27. Overall, the consensus target price went down by around $33.54. According to FN Arena, it now sits at $282.67, about 28.1% higher than the last ASX price of $220.74.
Most brokers still have “buy” recommendations. UBS and Citi are the most bullish with a target of $300, while Bell Potter is the most bearish with a target price of $240.
Question 3: With lower interest rates expected to benefit small caps, is there a way to readily track how the small cap indices are performing?
Answer: Yes, you can follow these in “real time” on most trading platforms. Here are the codes:
Small Ordinaries (stocks ranked 101 to 300): XSO
EX20 (stocks ranked 21st to 200th): YEX2
Top 20 (stocks ranked 1st to 20th): XTL
S&P/ASX 200 (stocks ranked 1st to 200th): XJO
Question 4: Why does BHP pay its dividend in US dollars? How many Australian dollars will I receive?
Answer: Some years ago, BHP changed its financial system to record and report in US dollars. It did this because the commodities it mines and sells are priced in US dollars. As the earnings are measured in US dollars, the dividends are also calculated in US dollars.
BHP has declared a final dividend of US$0.60 per share. This will be paid on 25 September. Australian resident shareholders will be paid in Australian dollars, based upon an exchange rate set on 8 September. Assuming this is 0.65, you will receive a final dividend of about A$0.92 per share.
If you don’t want the dividend in cash, you can always take it in additional BHP shares through the DRP. The closing date to make an election here is also 8 September. BHP will trade on the ASX ‘ex’ the dividend on 4 September.
