5 stocks IML likes from the ASX 50 most consistent dividends payers analysis

Yesterday, my colleague Carl Capolingua conducted a forensic analysis of the ASX's top 50 stocks, hunting for the most consistent dividend payers within the cohort. 

For anyone who missed it, the analysis is available below; 

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The most consistent dividend paying stocks in the ASX top 50

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Whilst Carl has done an excellent job of crunching the numbers, we also wanted to reach out to a portfolio manager to get further insights on a select group of names within the top 50. 

For that, we engaged Michael O'Neill, Portfolio Manager from IML. O'Neill knows his way around high-quality income stocks, co-managing the Investors Mutual Equity Income Fund alongside Portfolio Manager Tuan Luu. 

The analysis below was provided by Michael O'Neill

CSL Limited (ASX: CSL)
CSL ranked #7 on Carl's top 20 most consistent dividend payers list

As one of Australia’s few truly global success stories, CSL receives a lot of attention for its growth, but fewer plaudits for its dividends. We like it for both reasons. CSL has paid a growing dividend every year since listing in 1994 except for three instances where dividends were roughly flat year-on-year.

The consistent dividend payouts are built on its track record of increasing its market share, both through acquisition and organic growth, and also re-investing profits back into the business to grow its R&D pipeline and fuel further growth. This balancing act between paying dividends and investing for growth has been expertly stewarded by its management team for three decades.

We expect CSL to deliver double digit underlying profit growth over the medium term, which is quite a feat for a company of its size. While its share price has recovered since the lows of October last year, we think CSL still looks relatively attractive given that it has lagged many other growth stocks since then, despite being one of Australia's highest quality listed companies, with such an impressive track record of growth and dividends.

Suncorp (ASX: SUN)
SUN ranked #4 on the top 20 average grossed-up yield list and #13 on the top 20 forward average grossed-up yield list

Suncorp is one of Australia’s leading insurance companies with a stable of strong brands which give it a high level of customer retention and pricing power. The large, well-established insurance companies like Suncorp benefit from scale advantages against smaller peers in both home and motor insurance, particularly in terms of supply chain management and flexibility to respond rapidly to disasters and weather events. Suncorp's business is more heavily skewed to retail home and motor insurance than peers, and the growth in policy numbers and average premiums in these classes is driving improving returns (chart below).

We expect Suncorp to continue performing well in the medium term. It has increased insurance premiums but these haven’t yet fully flowed through into profit. The rate at which this increased pricing earns-through is accelerating, which should result in a recovery in Suncorp’s margins. Margin improvement will also be underpinned by higher investment income, due to higher interest rates. Finally, Suncorp has a proven long track record of returning excess capital. We expect Suncorp to return capital to shareholders early in the next financial year, in the event that the final approval from the Federal Treasurer is granted for the sale of its banking arm to ANZ.

Medibank Private (ASX: MPL)
MPL ranked #1 on the top 20 most consistent list and #15 on the top 20 average grossed-up yield list

Medibank is Australia’s largest Australian private health insurer. Like Suncorp, it is benefitting from increased investment earnings, due to higher interest rates. Its strong brands, along with its high customer satisfaction levels, helped it to bounce back quickly after the cyber-attack and start growing customer numbers again in a matter of months.

Its leading market position coupled with Australia’s growing and ageing population, has helped Medibank to grow its customer numbers by around 3% for the past two years. Other societal factors are driving more people towards private health insurance, including the increase in waiting periods at public hospitals. This strong brand and market position gives it a high level of recurring, and growing revenue. This, combined with its conservative balance sheet (with no debt) enable it to pay consistently high dividends.

Telstra (ASX: TLS)
TLS ranked #3 on the top 20 average grossed-up yield list and #9 on the top 20 forward average grossed-up yield list

Telstra is the clear market leader in telecommunication in Australia. It has the top brand and the widest mobile network coverage, along with a network of undervalued infrastructure assets within its InfraCo division. Between 2016-2020, the local telco industry went through a difficult period of intense mobile competition that led to a mutually damaging price war. This period is behind it and all participants are now behaving more rationally and increasing prices in a necessary bid to improve their profit margins and returns. As you can see in the graph below, mobile plan prices are increasing, after having declined over the prior decade.

Communication services is one of the last things that consumers and businesses look to cut back on when money is tight. Telstra's market-leading position and Australia’s growing population ensure a high level of recurring, growing revenue which has allowed it to pay a consistently high dividend, year after year.

Telstra’s share price fell 10.3% in May after management announced job cuts, mainly in its Enterprise division, and updated customer terms on postpaid mobile plans to remove annual CPI linked price reviews. While the market reacted negatively, we believe this will help Telstra meet its cost reduction target and we are still forecasting mid-single digit profit growth per annum for the next three years. As an industry leader which provides essential goods and services we believe Telstra represents good value and provides an attractive dividend yield in an uncertain economic environment.

The Lottery Corporation (ASX: TLC)
TLC ranked #19 on the top 20 forward average grossed-up yield list

TLC is the largest lottery operator in Australia and operates in all states of Australia except Western Australia. It has long-term, monopoly licenses across both Lotteries and Keno, providing recurring revenue through the economic cycle. The Lottery Corporation (TLC) became an independent business two years ago when it demerged from Tabcorp in May 2022 after much lobbying from us and other shareholders. While TLC has a shorter track record of paying dividends as a separate entity, the steady, infrastructure-like cashflow of the lotteries business should underpin consistent dividends in future.

TLC has a loyal, engaged customer base that continue to use its products regardless of the economic cycle and participation increases significantly when large jackpots occur. It also has good growth prospects as its customers move to digital channels away from traditional newsagents, avoiding a commission payable for physical tickets, thereby improving its margins and dividend prospects. A few years ago around 15% of customers bought tickets digitally, now it’s 39.6%. TLC is also innovating its products and selling these directly to existing customers via e-marketing, giving it a low-cost channel to improve engagement and takeup.

After reliable income and capital growth?

The Investors Mutual Equity Income Fund focuses on providing investors with a reliable, and relatively high, income stream, as well as capital growth, with lower volatility than the ASX 300. To learn more, visit their website or fund profile below. 

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