Buy Hold Sell: 3 underrated dividend stocks for steady income (and two to skip)

If property investing is all about location, location, location, then equity yield is all about consistency, consistency, consistency.

Yes, investors want a suitable level of yield but the smart ones are willing to relinquish some of that level for a higher degree of consistency.

Not convinced?

Well, Livewire's Carl Capolingua wrote a wire last year titled "The most consistent dividend paying stocks in the ASX top 50", which was read almost 50,000 times, had 170 likes, and was one of the most popular wires of 2024.

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The most consistent dividend paying stocks in the ASX top 50

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So, with dividend consistency the name of the game, in this episode of Buy Hold Sell, Michael O'Neill from IML and Ben Clark from TMS Private Wealth run the ruler over three stocks that have paid steadily growing dividends over the past five years (and in some cases, a lot longer). 

They also each highlight a stock where the level or consistency of yield could come under pressure. 

Note: This episode was recorded on Wednesday, 12 February 2025. You can watch the video, listen to the podcast or read an edited transcript below.

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Edited Transcript

Sara Allen: Hello and welcome to Livewire's Buy Hold Sell. I'm Sara Allen. One of the hallmarks of a great income stock is having a sustainable dividend. There's no point in delivering 10% one year and zero the next. Investors need consistent yield. Today, we're looking at those companies that can be relied on to deliver year in, year out. What's the outlook for these companies? Can they continue to deliver? And is the consistency worth the sometimes lower-than-average yield they offer?

To answer these questions and more, I'm joined by Ben Clark from TMS Private Wealth, and Michael O'Neill from IML. Thank you both for joining me today. We're going to start with Medibank, the healthcare insurer. Michael, you're up first. Is it a buy, hold, or sell?

Medibank Private (ASX: MPL)

Michael O'Neill (HOLD): It's a hold. They've got a net cash balance sheet. At the right price, they're the health insurer to own because they're a leader in the market. They've got one of the lowest management expense ratios in the industry. They're investing in customer retention, as well as initiatives to reduce claims costs, and the amount of money and scale of their investment in IT and health services is something that their peers can't replicate.

Sara Allen: Okay. Ben, how are you feeling about it… is it buy, hold or sell?

Ben Clark (HOLD): Yeah, a hold as well – I echo all of those comments. A couple more from me: when you look at the tailwind behind health insurance, it's pretty hard to argue against. You've got with the way the tax system is set up, bracket creep and all those things, rising incomes, it pushes more people in a growing population into health insurance. Medibank, I think, is the one you want to win in this space.

We also saw how sticky it was when they had that big cyber incident. Less than 1% of their customers left as a result, and that says it's a pretty good business to me. My only reason I'd have it as a hold, apart from maybe a bit of valuation, is I feel like there's been this arm wrestle between the private hospital operators and the health insurers for margin. 10 years ago, Ramsay, et cetera, were just killing the, I think, poorly-run private health insurers, and that's completely gone back the other way. Maybe a bit too far the other way, because we know these private hospitals, as it stands, look unsustainable, so maybe they have to give up a bit of margin going forward.

Coles Group (ASX: COL)

Sara Allen: Next up, we're going to pick one of Australia's favourite supermarket duopolies, or the not-so-favorite - Coles. Is it a buy, hold, or sell?

Ben Clark (HOLD): I think this is a hold. This company has delivered really good performance at a management level. It surprised me, to be honest. I think they've definitely made some inroads against Woollies since they've been spun out of Wesfarmers. They're in a mini profit upgrade cycle, I would say, and they've continued to exceed market expectations for several years now. Doesn't look cheap. The yield looks pretty good, so I'm going a hold.

Sara Allen: Okay. Michael, how do you feel about Coles… buy, hold, or sell?

Michael O'Neill (HOLD): It's a hold for me too. We've seen them win some share from Woolworths, partly due to supply chain issues. Ocado fulfillment is starting to ramp up. There have been some benefits from food inflation, but that's starting to moderate. But if we look across the industry, you're still seeing the impact of competition. There's a lot of regulatory scrutiny. There's a need to invest in automation and digitisation. And then there's just the pressure of cost-of-living impost on the consumer basket.

We also have some concerns about their strategy of rationalising their product set with suppliers to drive gross margin, because that seems a little short-term in focus.

Brambles (ASX: BXB)

Sara Allen: Last up is industrials business, Brambles. Michael, how are you feeling about it?

Michael O'Neill (BUY): Brambles is a buy. Pallet pooling is absolutely critical to world supply chains, and they're the biggest pallet pooling company. Naturally, they get very good scale and network benefits. We see their earnings and free cash flow generation improving over time. Firstly, from price increases, but also from higher turns of pallets through their system and lower loss ratios. Their capital expenditures should fall. We're hopeful of the initiatives they have for tracking their pallets better. So put all that together, the growing free cash flow should underpin further capital returns in the form of dividends and buybacks.

Sara Allen: Ben, is it a buy, hold, or sell for you?

Ben Clark (BUY): I think it's a buy as well. It's actually paying a pretty good, near 4% yield for FY26. Mainly unfranked, I would say. But the reason it's unfranked is also positive because there has definitely been a scramble amongst investors to try and get exposure to Australian businesses that have got exposure to the United States. About 60% of revenue comes from America, and that's where the growth has coming from as well. They're growing that top line at 5-6% per annum, bottom line, 10-11% per annum.

I think for some investors, including mine, it had a bit of a checkered past. There was always these weird incidents that would come out, but it feels like management has really got their act together and they're really delivering. And again, like Coles, it's continuing to move analysts consensus numbers higher, which is always a good thing for the momentum of a share price.

Guest picks

Sara Allen: Now, I'm going to ask our I guests for a stock to steer clear of. We've had some to hold and buy, now it's stay away from. Ben, we're going to start with you. Which income stock do you think investors over appreciate?

Woodside Energy (ASX: WDS)

Ben Clark: I'm going to go with Woodies, which is ASX 20, let’s try and go big. It's on a trailing yield of something over 10%, which when you're looking in the newspaper and you're thinking what still looks good on a yield basis, can be a real trap, because looking forward the yield outlook doesn't look great. Trump clearly wants a low energy price world, particularly for the United States, to drive a lot of what he's doing. There's going to be potentially, not in the immediate future, but he will open up regulatory pathways for new supply to come to market.

And then, Woodside's got declining barrels. It needs to sink significant capital to get that moving again. I'd say that the company has also got a bit of a checkered history of M&A, where it's been allocating capital to. So, I think that dividend is something I would not rely on going forward to be as good as it has in the past.

Sara Allen: Okay. So, Woodside's overrated. And Michael, over to you, which stock is overappreciated in your opinion?

Commonwealth Bank (ASX: CBA)

Michael O'Neill: I've got to say CBA. Now, I'm not saying that they're going to cut their dividend in this environment, where they're very well capitalised, and if anything, loan growth should moderate -their dividend looks pretty secure. But if you ask “What's the investor getting?”, they're getting a 3% dividend yield and that's a payout ratio in the last result of 73%.

I went online today and looked at what I could get on a 12-month term deposit on CBA. If I gross up the yield, it's pretty similar to what a term deposit is playing, about 4.2, 4.3%. And then, I looked at the CBA hybrids, depending on the PERLS issuance, it's around 7%. Usually, when you invest in the stock market, you expect a premium above what you can get in lower-risk classes, such as your fixed income, hybrids and term deposits. It seems backwards to me. So, the valuation exposure, I think, is the main concern.

Sara Allen: Controversial one for our readers. I think you could pry Commonwealth Bank out of some of their cold, dead, hands. Thank you so much for sharing your insights today.

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