Question 1: Will Westpac’s (WBC) share price be under pressure following AUSTRAC’s record $1.3 billion fine for money laundering?
Answer: The size of the fine is probably a little higher than the market expected but it is in the range. Most analysts expected it to be more than the $900 million the bank had already provisioned. The additional $404m cost that will be booked in the September 30 accounts will be viewed as a “one-off”.
Bottom line – it is a positive for Westpac that this saga has come to an end.
Question 2: What’s your view on the share purchase plan (SPP) for the Charter Hall Long WALE REIT (CLW)?
Answer: Participate. The SPP is priced at a maximum of $4.87 per share, CLW’s shares are currently trading at $5.13. I wrote favourably about CLW on 31 August in ‘3 good income stocks I like’ (see https://switzersuperreport.com.au/3-good-income-stocks-i-like/ ). As the issue is capped at $10m, I expect that it will be heavily over-subscribed and subject to a scale back. The SPP closes at 5pm on Thursday 8 October.
Question 3: I am a self-funded retiree. BHP and RIO are considered blue chip stocks for long-term investment. Their share prices are boosted by the temporary high demand and high price for iron ore. Should I take the profits now and buy again at the next good opportunity?
Answer: BHP and Rio are well-run companies and will always be part of my “core portfolio”.
I wouldn’t be over-weight these stocks because it was inevitable that Vale would lift production and some supply/demand balance would return to the iron ore market. But this is largely factored in, with most analysts forecasting materially lower long-term iron ore prices (around US$80 per tonne) compared to the current spot price of US$114 per tonne.
According to FN Arena, current broker targets and recommendations are: BHP 4 buy/3 neutral/0 sell, target price $40.54 (implying about 9.1% upside); RIO 3 buy/3 neutral/1 sell, target price $106.77 (implying about 9.6% upside).
This is all said, one of my observations is that no one (analyst, commentator, company CEO) is consistently good at predicting the iron ore price.
Unless I think BHP or RIO are in “super cheap” territory, I just play these stocks around index weight. I go overweight when the market really hates them, and take some profits when the market “can’t get enough of them”. Currently, the market appears to be relatively neutral on BHP and RIO.
Question 4: Like many SMSF Investors, I have been hard hit by relying too much on the Banks and Telstra for their dividends. As a result, I am looking to rotate into investments that provide less dividend income but greater security and continuity of such dividend income. One such area of interest for my future investment activity is Australian Property (REITS). Could you nominate 6 to 8 REITS that I could research further, before deciding whether to invest? My objective is to achieve a reasonable, secure and continuing Income ( range 4.5% to 6%) from solid investments in the REIT sector.
Answer: Here are 8 REITs to consider. I should point out that there has been massive disruption in the REIT market due to Covid-19. Commercial office REITs and shopping centre REITs have been hit really hard, while many industrial REITs (particularly those with exposures to logistics) have boomed and their prices have soared. Buying REITs at the moment needs a view about how Covid-19 will play out and the medium-term demand for commercial property. Have a look at these:
- Charter Hall Long WALE REIT (CLR) – long lease exposure
- Goodman Group (GMG) – diversified, but exposed to industrial and logistics
- Dexus (DXS) – mainly commercial office
- Centuria Office REIT – mainly metropolitan office
- Vicinity Centres – retail, mainly major centres
- GPT Group (GPT) – diversified, but mainly commercial office
- National Storage REIT (NSR) – specialty, self-storage centres
- BWP Trust (BWP) – specialty, Bunnings Warehouses
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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.
