It’s time to sell some big caps and rotate into income payers

Founder and Publisher of the Switzer Report
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Paul Rickard and yours truly have taken the view that the likes of CBA, Wesfarmers, JB Hi-Fi and other big cap stocks are overbought, and how it could be wise to take profit and rotate into stocks that look to benefit from lower interest rates in 2025. This is a ‘no brainer’ for our financial planning clients in pension mode, but many of these like the dividends these companies pay and if they bought them at much lower prices the percentage yield is high.

However, if their share prices fall by 10% or more, they could lose capital value and miss out on the gains from other stocks that have been beaten up over the past two years, as interest rates rose 13 times. For example, if the CBA share price is $140 and it falls 10%, that’s a $14 loss. If it falls by 20%, that would be a $28 drop per share.

So, I’m looking for stocks that pay a better dividend and which stocks that analysts think have capital gains ahead.

  1. Playing Vanguard’s VAS

In simple terms, playing Vanguard’s VAS gives you the top 300 stocks. Because it has a lot of smaller cap companies bound to benefit from rate cuts, this is a good way to expect capital gain, dividends of 4% and franking credits.

VAS

  1. Let’s talk EX20

I also like BetaShares’ EX20 because it will take out the top 20 stocks in the S&P/ASX 200 and so should capture a lot of stocks that will enjoy lower interest rates. Over the last months, EX20 was up 2.37% while the S&P/ASX 200 was up 1.87%.

  1. Telstra (TLS) looks like a buy

Looking for individual stocks, Telstra (TLS) looks like a buy, with the consensus call at plus 6.4%. And five out of six analysts give the telco the thumbs up.

Telstra TLS

By the way, the forecast dividend for TLS is around 5% and you can add franking credits, taking it even higher.

In contrast, another well-known dividend stock i.e. NAB has a minus 16.3% call out there, with six out of six analysts not liking the stock going forward. Citi sees a 30.28% fall ahead, while the dividend ahead is around 4.4%, which looks small if the share price falls in line with expectations.

  1. Sunny days ahead for SUN

One-time bank and now insurer only Suncorp (SUN) has an average call of plus 5.4% from the analysts surveyed by FNArena. Five out of six analysts see SUN’s share price on the rise, with Morgan Stanley’s expert being the biggest fan.

SUN

The 2025 dividend yield forecast is 5%. Once again, you’d add in franking.

  1. BHP’s a good dividend payer

If you want a dividend-payer with good, predicted capital gain, consider BHP. The average expected rise is 11.1% and the dividend is forecasted around 5%. Here’s the full range of tipped price changes.

BHP

Note that six out of six like the company, with Morgans, a brokerage that has a strong interest in miners, seeing an 18.99% gain ahead.

  1. APA is boring but solid

A boring but solid dividend stock is APA.
APA Group owns and operates natural gas and electricity assets, while increasingly adding renewables. It’s Australia’s largest natural gas infrastructure business.

The consensus rise is 13.9% and the expected dividend is 7.6% but it doesn’t pay franking credits.

APA

As you can see, there’s one dissenter —i.e. Morgans, but Morgan Stanley and Ord Minnett are big fans, with rises over 20% predicted.

  1. Vanguard High Yield or Switzer Dividend Growth fund

Of course, if you want a diversified play on dividend stocks, consider the Vanguard High Yield Fund or the Switzer Dividend Growth Fund, where a fund manager picks a range of stocks with the goal of averaging around 5-6% or better.

In a perfect world, pocketing 5% income and a solid rise in capital (say between 5-10%) doesn’t look that unachievable over the next 12 months, with a world of falling interest rates bound to help stocks head higher.

 

Important informati on: 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.

 

 

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