FYI | Aug 25 2016
By Peter Switzer, Switzer Super Report
There’s a lot of pot-shotting at dividend-paying stocks lately but it’s often done by those who benefit from pedalling growth stocks. Mind you, I like a bit of growth in my portfolio but I like the solidity of reliable dividend payers.
I’ve made this point before I’ll make it again: if history shows that a good portfolio of stocks will return around 10% per annum over a decade (that’s despite a couple of bad, mad and dangerous years) and half of that gain is from dividends, then a risk-averse investor should wisely construct a portfolio which is skewed towards dividend payers.
The Switzer Super Report has the likes of Charlie Aitken and Tony Featherstone picking out the hotshot high flyers of tomorrow and I love the ideas they come up with. However, for the biggest chunk of my portfolio, I’m a steady-as-she-goes investor.
If I was to create a fund, it would be a dividend-growth fund, which would do exactly what I have created for myself — long on dividend payers but giving me some chance to ride up on market positivity.
This wouldn’t shoot the lights out when the market is going wildly positive but it would go along for the ride, albeit at a slower pace, but it would a really reliable performer in both good and bad weather!
Over the weekend, I revisited the performance of the banks over the period 2006-07 through to now. I know the CBA’s dividend dropped in 2008-09 as the GFC’s bite put the squeeze on the payout. The full year dividend went from $2.56 to $2.66 and then down to $2.28 but rebounded to $2.90! Then it was $3.20 and higher and higher to the latest $4.20.
ANZ, which hasn’t been as stellar a performer, went from $1.31 to $1.36 to $1.20 to $1.08 but then got even with a $1.38 payout. So there were two rough years but the five-year average was $1.26. In the following years the dividend went to $1.42 and as high as $1.81 for the year before last.
As ANZ’s share price was diving and then going sideways, its dividend was going from $1.42 to $1.52 to $1.74 to $1.81 and $1.75 but that followed the bank pulling back from its Asian punt.
The point is clear that reliable companies even through tough stock market times produce pretty damn good dividends. Sure, there’ll be some bad stories like the BHP-Billiton back down on their progressive dividend promise but history has shown that you should never buy resource stocks for dividends.
Companies such as WAM, Platinum, Perpetual, Duet, Bank of Queensland, Suncorp, Automotive Holdings Group and Spark NZ are all good dividend payers.
I like to hold about 20 dividend stocks, which means I’m less exposed to crazy decisions by chairmen or CEOs or bewildering decisions by governments that could really hurt any one or two companies in my portfolio.
Over the time that the banks battled the GFC headwinds and bounced back, AMP had a rougher time for a variety of company-specific reasons. Its dividend in 2006-07 went from 40 cents to 30 cents post-GFC and has been around the mid-high 20 cents region thereafter.
Considering it was over $10 before the GFC and has struggled between $4-6 since that time, its dividend story hasn’t been all that bad. Even today it’s still in the 5% neighbourhood.
Here’s a list of regular good dividend payers worth thinking about:
DUE, BOQ, CBA, WBC, ANZ, NAB, TLS, ASX, SUN,
SGP, GMG, AMC, SCG, CCL, ORG, CMW, CQR, PTM,
PPT, AHG, WAM.
As I say, there will be times when growth or cyclical stocks will shoot the lights out and these could be left behind and some could even be sold off as fund managers dump reliable dividend payers to chase short-term stellar performers. However, that could be a buying opportunity for a collector of companies worth having a long-term relationship with. During these times, the dividends should be unchallenged and could even rise as good times for growth companies implies good economic growth, which underpins profits and therefore dividends.
While there are dividend doubters out there, I’ve been arguing that the Top 20 stocks could be in for a bit of a comeback after a couple of bad years where mid- and small-cap companies have made all the running. Gradually, a number of my stable of experts are starting to see eye-to-eye with my speculation about this country’s top 20 companies on the ASX.
I hope we’re right but even if I am one year early with the top 20, I’m definitely on the money going long on reliable dividend stocks.
They’re beautifully boring but they’re consistent and that’ll do me.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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