With certain negativity surrounding US Equities at the start of 2016, including recent comments like "Citi underweight US Stocks", and "Deutsche Bank cuts U.S. GDP forecasts", I am looking to further diversify my "High Dividend Retirement Portfolio" (6-8% Dividend Target) by investing in markets offering more value and higher upside potential. The Australian stock market offers exactly this, with the added bonus of exceptionally high dividend yield.
2016 Outlook for the Australian Stock Market
The ASX 200 Australian stock index finished the year down 2.1% at 5,295 level. It was a turbulent year in 2015 mainly due to low commodity prices and volatility in the Chinese market, to which the Australian economy is sensitive. As market correction and a bottoming out of resources earnings already being priced into the market, many investment banks and money managers are bullish on the Australian stock market, and predicting high capital gains for 2016 onwards. ASX 200 is expected to rally and close around 6000 level in December 2016. With the ASX 200 closing end December, 2015 at 5,295 level, this implies a 13% capital returns from December close before dividend, with total return of around 18% after taking into account dividend returns.
- Credit Suisse (CS) forecasts the ASX 200 to hit 6000 points by end-2016, based on low valuations and solid balance sheets.
- Deutsche Bank (DB) is also bullish on the future of the Aussie stock market. The investment bank believes the ASX 200 is on course to rise 10% over the next year.
- Citigroup (C) is one of the most bullish on Australian equities with year-end 2016 target for the ASX 200 at 6200, a 17 per cent rise from its December 31 close before dividend returns.
ASX 200: 2-Year Chart 2014 and 2015
Source: Yahoo Finance.
High Dividend Yield and Low Valuation makes Australian Stock a Good Investment
With interest rates falling in Australia, and still at record low levels worldwide, high yield stocks continue to appeal to a large number of investors. The average dividend yield of the ASX is one of the highest in the world, with 4.7% yield, compared to only 2% yield for the S&P 500.
Furthermore, Australian stocks offer a compelling low valuation. The ASX includes over 2000 listed entities, with a Forward PE ratio of 15.3, compared to 17.4 for the S&P 500.
List of High Yield Australian Stocks Listed in New York
The following is a list of high yield Australian equities listed in New York. I picked the largest companies to compile the table, so the list is not comprehensive.
Topping the list are energy and material stocks, including Woodside Petroleum (WOPEY), BHP Billiton (BHP), and Rio Tinto (RIO), while the other large companies are mostly in the financial sector.
Banking Sector offers the Best Entry into the Australian High Yield
Australian banks have underperformed in 2015 compared to their international peers due to a weaker Australian dollar, investor concerns over higher capital requirements, but now offer value according to several analysts, and to Guru Investor Warren Buffett. With the Banking sector in Australia offering excellent dividend yield, and being the favorite sector by investment guru Warren Buffett. I will highlight the 2 good picks: Westpac Banking Corp (WBK) and Australia and New Zealand Banking Group (ANZBY), which are favored by investment banks, and leading brokers including Credit Suisse, and Goldman Sacks.
Westpac Banking Corp.
Westpac Banking Corp. - WBK is one of Buffett's favorites. The bank pays a dividend yield of around 5.5% and has a forward PE of 12.6 with a high return on equity (ROI) of around 16%.
The 15 analysts who cover the bank have a consensus median target for the next twelve months that suggest a 3.4% increase in the stock price on top of the dividend income.
Australia and New Zealand Banking Group
The other best picks and one of my favorite is the Australia and New Zealand Banking Group - ANZBY and pays a dividend yield of 6.7%. The stock has a forward PE of 10.8 and a return on equity of 14%.
The 15 analysts who cover the bank expect have a consensus median target for the next twelve months that suggest a 10% increase in the stock price on top of the dividend income. So the current price suggests a good entry point for this high yielding stock.
Other High-Yield Australian Stocks
The metal miners and metal producers such as BHP Billiton , and Rio Tinto have seen their price dwindle in the past couple of years due to low commodity prices. However there are signs that suggest some relief in the prices of metals in 2016. I will be writing shortly on Seeking Alpha a separate, detailed analysis about this subject. The time to start initiating position in the "high dividend" miners will come pretty soon.
Follow me for future updates on my "high-Dividend Retirement Portfolio" targeting overall 6-8% dividend yield:
I have been sharing some of the buy recommendations on Seeking Alpha, with the latest 4 recommendations in December 2015. Those who followed me have made so far over 10.6% in capital gains in less than one month, on top of locking excellent dividends. This is during a period when all major indexes were down. Recommendations included BDCL, MLPL, CEFL, and SMHD.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
This article was written by
Rida Morwa
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Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.
Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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