Question: We have a SMSF and have not done fantastically out of share investing, which is why we joined the Switzer Super Report after following Peter for a while on his Foxtel business show.
We have now accumulated $200,000 cash to invest and need good dividend-paying companies, as we are both over 65 and retired.
I note your preference in the banks for CBA, of which we have 1200, and many more NAB.
Answer (by Paul Rickard): Understanding your preference for dividends, I would suggest the major banks, companies like Transurban (TCL) and Sydney Airport (SYD) (largely unfranked), ASX (ASX), Telstra (TLS), AGL (AGL), Boral (BLD), Wesfarmers (WES) etc.
That said, I prefer a portfolio approach and think you need to have some exposure to most sectors, including materials and energy. Have a look at my income portfolio – see here [1] – which is keeping pace with the market and will yield a touch over 5%, franked to about 90%.
The other option, if it is all too hard, is to consider a broad based LIC that targets dividend growth companies. Consider companies like Milton Corporation (MLT), Argo (ARG) and AFIC (AFI).
Question: You stated that Telstra (TLS) would move to $6.00 and show good return. At the present time TLS in heading south very quickly and I would ask the question what do you think will happen.
Answer (by Paul Rickard): We were wrong on Telstra going to $6.00.
The market is viewing the company as “ex growth”, is concerned about a potential revenue hole post the NBN, and fears that some of the technical outages that Telstra had earlier this year will impact customer retention and undermine its key competitive positioning – network reliability.
The brokers remain neutral to negative, with 5 holds and 3 sells. Due to Telstra’s recent share price performance, the consensus target price of $5.12 is now about 8% higher than the current share price. It is trading on a multiple of 13.7 times FY17 earnings, 13.1 times FY18 earnings, forecast dividend yield is 6.7% plus franking credits.
Am I selling at $4.71? No, I think the stock is fundamentally cheap and I don’t need the cash.
Will it go up in the short term? Probably not – it is just out of favour, and while bond yields are rising, it will stay this way. If the bond market steadies, expect to see some more value hunters.
My advice – hang in there, but if you want some stocks to move with the market in the short term, it is probably not Telstra.
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 regards to your circumstances.