FYI | Sep 11 2018
By Peter Switzer, Switzer Super Report
Five solid stocks that pay reliable income
Last week I promised to look at the top income-paying stocks outside of the top 10 holdings of Shawn Burns, the fund manager for the listed investment company — the Contango Income Generator (CIE). This fund focuses on companies outside of the top 30 stocks that many of us already have in our portfolios.
I presumed many of these could be higher dividend-payers but they, as a consequence, could be a tad more risky. However, in fact, they all look pretty reliable conveyances with returns being respectable without being outlandishly rewarding, except for HVN, which is an individual story in its own right.
The top 5
So here’s what Shawn has revealed and I’ve gone to FN Arena to see what the analysts think of these companies going forward.
1. Charter Hall Group (CHC) is currently expected to yield 5% and 5.8% grossed up. The company is a well-regarded property manager and owner. Management has a terrific track record of raising funds from clients for investment in its range of property funds. Ongoing growth is expected. The consensus of analysts on FNArena is that this stock has a 6.5% downside to $6.69.
2. Star Entertainment Group (SGR) is currently yielding 4.1% and 5.9% grossed up. It recently increased its payout ratio as a sign of increased confidence in its operations. It owns and manages casinos in Sydney, Brisbane and the Gold Coast and has a large capital spend to come but has cleverly obtained third party funding for a proportion of it. This stock has pretty decent appeal for a bargain hunter who thinks a good income payout is needed as a backstop for their faith in a company. The analysts think the stock has an upside of 13.8% to a target of $6.12. It opened trading today at $5.30.
3. Event Hospitality and Entertainment Ltd (EVT) now yields 3.9% and 5.6% grossed up. The company has a long track record of value adding and has conservative management. Operations include cinema and hotel businesses as well as a Thredbo resort. There is also a large property development potential over the long term. This is another appealing play with the consensus of experts tipping this stock with a 9.3% rise ahead of it!
4. Magellan Financial Group (MFG) yields 5.6% and 7.9% grossed up. The equity manager has a good record of raising funds and positive performance by its products. Recently Magellan raised its payout ratio to shareholders, which is a positive sign. This is another potential win-win stock with the good dividend supported by the view that the company could trend up – by 4.4%.
5. Brickworks Ltd (BKW) now delivers a yield of 1% and 4.4% grossed up. It has a good diversified business mix and is conservatively managed. It has an enviable record of growing dividends in a sustainable way. Through its investment in Washington Soul Patterson, it has exposure to coal mines, telecommunications as well as property and brick production. Unfortunately, this is a much-loved stock and has had plenty of supporters, but now the analysts see an 8.4% slide.
The case for Harvey Norman
6. Harvey Norman Holdings Ltd (HVN) currently yields 7.5% and 10.8% grossed up. The company has a strong, competitive retail operation, built on a proven franchise structure. Also, the company has a solid property portfolio, which helps to support valuations. It’s trading at an attractive yield due to anticipated competition from Amazon.
I especially asked Shawn whether he’s invested in Harvey Norman because I interviewed Gerry Harvey for Money Talks and our website and he’s hopping mad about short sellers [10% shorted as of last week]. Shawn says Harvey Norman is the only discount retailer he holds and he has a small holding in the Contango Income Generator.
The analysts think the company, despite threats from Amazon and a slowing housing sector, should rise by 6.5%. Of course, I would’ve preferred a good double-digit predicted gain, but the numbers do suggest that this might be a company worth taking a punt on, given how the market has treated the business.
Interestingly, Gerry says he’s been through property price downturns and while he prefers them to be rising, he says one million new people coming to Australia via immigration each year is more important to his bottom line.
Locally, he knows retail will remain flat, but he’s not expecting anything too negative. The 3.4% economic growth number last week, driven by stronger consumers, would have cheered him up as he stresses over the unfair tactics of short-sellers.
Remember, if he’s right and his critics are wrong, then his stock could easily spike.
Clearly for the cautious thrill-seekers, who want dividends and pretty big capital gain upside, then Harvey Norman, Event Hospitality and Entertainment Ltd (EVT) and Star Entertainment Group (SGR) are worth considering.
And I really hope Gerry knows more about retail than the retail analysts and the short sellers!
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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