Buy Hold Sell: 3 dividend darlings (and 2 with adviser approval)

More than 1000 Livewire readers participated in our latest Income Series survey. The results showed that investor hunger for income-generating equities remains remarkably high.

Domestic equities are by far the most popular asset class for income investing, with 93% of respondents choosing this option.

This is despite bonds having bounced back from a tough 18 months and TDs fetching investors north of 5% on a good day.

It seems investors are looking for higher returns, particularly given inflation is running hot and real yields (what you actually get after inflation) are what ultimately matter.

The survey also highlighted that 50% of respondents are looking to increase their exposure to domestic equities in the next 12 months in order to generate income.

So, what better time to focus on income-generating equities in an episode of Buy Hold Sell than now? 

In this episode, Ord Minnett’s David Lane and Centaur Financial Services’ Hugh Robertson run the ruler over three classic dividend darlings. They also highlight their top income pick for the next 12 months. 

Note: This episode was filmed on Wednesday 14 June 2023. You can watch the video, listen to the podcast, or read an edited transcript below.

Edited Transcript

Chris Conway: Hello, and welcome to Livewire Markets' Buy Hold Sell. Today we are taking a look at five ASX-listed income stocks. To do that, we are joined by David Lane from Ord Minnett and Hugh Robertson from Centaur Financial Services. Gents, thanks so much for being here today.

All right. First up we're going to talk BHP. It trades on a PE of around 12 times and has a dividend yield close to 9%. David, let's start with you. Is it a buy, hold, or sell?

BHP Group (ASX: BHP)

David Lane (HOLD): It's a hold. Great business. It's had a fantastic 12 months, or few years, but I think the best is behind it, and that dividend yield of 8.9%, I'd be a little bit wary of. I don't necessarily think that they'll get the cash flow going forward with weaker iron ore prices. So if you've got it, hold it, but I wouldn't be rushing to be buying it at the moment.

Chris Conway: Its share price is down around 5% over the last 12 months. Most brokers have a buy or a hold on it. Hugh, what do you think? Is it a buy, hold or sell?

Hugh Robertson (BUY): It's a buy. The dividend will go down to around 6.5%. It's still Australia's largest business. We're still going to be a beneficiary of the growth that's going to happen in China. So for me, it's a long-term play, and I think you'll get both: the income will continue to grow as well as the capital.

Commonwealth Bank (ASX: CBA)

Chris Conway: Next up we're talking CBA. Australia's biggest bank, of course. It has a PE of around 17 times and a yield of around 4.4%. That said, quite a few people in the market are talking about problems on the horizon for the big four. Hugh, we'll stay with you, buy, hold, or sell?

Hugh Robertson (SELL): It's a sell (not because I started my career there). It's a sell because I'm worried about the banking sector in general right now. I don't think what happened in America will necessarily happen here, but banks had such a good run for 10-plus years. I would avoid the banking sector. I would sell CBA... there are better opportunities elsewhere.

Chris Conway: The share price is up around 2.5% over the last 12 months, down 6.3% year-to-date however. David, buy, hold, or sell?

David Lane (HOLD): It's a hold. I think that there are better banks around. CBA commands a premium, as far as its share price is concerned. I don't really think it necessarily warrants that premium in the current environment, so I'd be looking at buying one of Westpac or ANZ, rather than CBA in the current environment.

Woolworths Group (ASX: WOW)

Chris Conway: Next up we're talking Woolworths, trading on a ritzy PE of 27 times, a dividend yield of just 2.6%. David, last one for you. Buy, hold or sell?

David Lane (SELL): I think that's a sell. I think that the consumer discretionary market is heading for trouble, and I think that Woolworths, as you said, are trading too expensively at the moment, so I'd be steering clear of them.

Chris Conway: Hugh, its share price has lifted more than 10% in the last 12 months. Investors have rushed to safeguard their cash in these defensive safe havens. Is it time for investors to take profits? Is it a buy, hold or sell?

Hugh Robertson (BUY): It's a buy. It's expensive, no doubt, but it's got a 36% market share. It's got the bargaining power. I class this as one of these recession-proof businesses. So it will be able to get through. The dividend is low, around 2.8%, but it will grow. And I feel we've got an economic winter coming, so I want to be in those businesses that are going to get me through this.

Top income stocks for the next 12 months

Chris Conway: We asked the gents to bring along their top income stock for the year ahead. Hugh, we'll stay with you. What have you got for the next 12 months?

Endeavour Group (ASX: EDV)

Hugh Robertson: So I'm going with Endeavour. Related to Woolworths, this was the spinoff. Some of the listeners might be familiar with it. They own Dan Murphy's. They own BWS. So, 50% total addressable market. I feel it could really do well. It has been able to increase its dividend and its earnings every year. So if we do go through a winter and some tough times, I feel this is a business that will get me through, both in terms of shares and lifestyle, the economic winter.

Chris Conway: I was going to say, that's the last thing people will give up, the drink. David, over to you. What is an income stock that you've been recommending to clients? What do you like for the next 12 months?

Ventia Services Group (ASX: VNT)

David Lane: A company called Ventia Services. They're a provider of backend support for the broadband rollout. They do a lot of the infrastructure behind building out office parks, etc. It's a business that's growing in its market share, provides a decent income, and also has some growth potential coming forward. I think Ventia Services is a great business.

Chris Conway: Well, that's all we have time for today. Thanks so much to David and Hugh for their fantastic insights. If you enjoyed the episode as much as I did, make sure to give it a like. And don't forget to follow our YouTube channel, because we're adding lots of great content every single week.