Regular readers of the Switzer Super Report will know our view on the banks, and in Short ‘n’ Sweet today we’ll revisit that and look at how the banks have faired so far this year. The below chart shows the Big Four, compared to the ASX over the past year.
In response to the bank bashers, Peter first wrote about why it’s ok to still hold banks in early February. He explained then that even if the banks have a sub-index year and rise just 3% from their lows, that’s still 7-8% performance with dividends plus grossing up.
“I know there will be better buys this year, but they might not be stocks you will want to have in a crash, because not only will the share price fall by more than the banks, so will the dividends,” he said.
Paul Rickard then followed up after some very strong earnings results and updates from three of the Big Four.
He pointed out then that the banks were in minor “cost-cutting” mode.
“Expense growth is being held, some jobs are going, and productivity and other automation benefits are helping to drive improvements in the bottom line,” he said.
The biggest risk for the banks would be an increase in loan impairment losses (bad debts), which could be caused by sharply higher unemployment or a bursting of the housing “bubble”. But neither of these things is likely in the short term.
Paul reiterated Peter’s assertion that even if banks lag the market, bank dividends will always provide support and cushion any downward price movement.
His preferred pick is CBA over NAB.
Dividend daze
This bank bashing is all part of a theme about the days of dividend payers being over. But as Peter was almost tempted to say a few weeks ago – that’s a load of crap.
“For lots of SMSF trustees, creating a portfolio, which has a great correlation with the index, for example Paul Rickard’s dividend portfolio, which returned over 24% last year, makes a lot of logical sense,” he said.
While that means it might be unlikely you will beat the index, it does mean you should be pretty relaxed about your fund under-performing, as it will have been built in for reliable returns in good times.
We know that the primary concern for SMSFs is income and we continue to like companies and stocks that can deliver that.
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.
Also in the Switzer Super Report:
- Charlie Aitken – Seven Group Holdings on the way to $10
- Tony Featherstone – Why you need to consider infrastructure
- Fundie’s Favourite – A travel insurance company to unpack into your portfolio
- Staff reporter – Buy, Sell, Hold – What the brokers say
- Tony Negline – How to ask the ATO for advice
- Questions of the week – The pros and cons of annuities and SuperStream
