Question 1: Is it too late to change my dividend re-investment plan instruction for CommBank? I understand that when the dividend of $2.00 was announced in February, the shares were trading near $90.00, but they have since tumbled and are now around $68.00. Does that mean that the number of shares I get will be based on a price of $90.00?
Answer (by Paul Rickard): Yes, it is too late to change. DRP elections (or changes regarding participation) closed on Friday 21 February.
The better news is that the DRP share price will be based on the weighted average price that CBA shares trade over the 4-week period from Monday 24 February through to Friday 20 March. Based on current trading, this means that the price is more likely to be around $75, rather than $90. The price will be announced early in the week of 23 March, with the shares to be issued on Tuesday 31 March.
Question 2: At some stage after all this market turmoil, the market will start heading back up. Do you have any preferred sectors or stocks that may recover early or some that you think will take quite a while?
Answer (by Paul Rickard). If there is one rule I would apply, that is: to stick with quality. When markets recover, quality companies recover fastest (they also tend to go down hard because they are often the most liquid).
Interestingly, the stocks that have held up the best are companies such as CSL, Resmed and Xero. If you saw Peter’s article on Monday, both CSL and Xero featured prominently in selections for stocks to hold “for the next decade”. Some of the defensives such as Medibank and Telstra have also done pretty well.
For recovery, I would avoid:
- Defensive sectors/stocks (consumer staples, utilities, property trusts etc. and companies such as Woolworths, Telstra, AGL etc.)
- Small caps (in general)
- Second tier companies (companies that aren’t market leaders)
- Beaten up industrials
I would look at the leading IT companies, the beaten up major banks (because they really have been whacked), the leading healthcare stocks, and even BHP and Rio.
Question 3: I sold one of the regional banks at a capital loss with the thought of changing over to one of the major banks and taking the opportunity to purchase at a dip price to offset the loss. The thought is to secure something to give a capital gain along with franked dividends. Which bank?
Answer (by Paul Rickard): I am on the Westpac “train” because it is too cheap relative to the other 3 majors. It is very much out of favour with most investors, partly because of the AML issue and the size of the fine is unresolved. It is also being managed by an acting CEO.
I have been on the Westpac train for some weeks now and have looked horribly wrong – but interestingly, it has just started to outperform the other 3 over the last few days.
You may need to ware some pain.
Important: 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. Consider the appropriateness of the information in regard to your circumstances.
