TOL - 5th May, 2023
Buy Hold Sell: 5 high yielders trading at compelling prices
In this episode, Plato's Peter Gardner and Antares' Andrew Hamilton analyse five dividend stocks that haven't re-rated this year.
Since September last year, Australian investors have piled into defensive dividend-paying darlings in a bid to protect their capital.
Think Aristocrat Leisure (ASX: ALL), which has seen its share price soar 23% year to date. Or ResMed (ASX: RMD), which has generated a return of 16% in just four months. Or Transurban (ASX: TCL) - which despite its recent selloff, is still up 13% in 2023 alone.
But should you overpay to be defensive?
In this episode, Livewire's James Marlay was joined by Plato Investment Management's Peter Gardner and Antares Equities' Andrew Hamilton for their analysis of three high-yield stocks that haven't enjoyed the re-rating of their peers over the past few months.
Plus, we also asked them to name one high yield stock that hasn't seen its share price materially rise this year.
Note: This episode was filmed on Wednesday 3 May 2023. You can watch the video, listen to the podcast, or read an edited transcript below.
Edited Transcript
James Marlay: Hello and welcome to Buy Hold Sell, brought to you by Livewire Markets. My name's James Marlay, and today we're talking about dividend darlings. Joining me on the show, I've got Andrew Hamilton from Antares and Pete Gardner from Plato, two dividend experts.
Let's get started with you, Pete. Coronado has a trailing yield of 20%, a bit deceptive. Buy, hold or sell?
Coronado Global Resources (ASX: CRN)
James Marlay: Andrew, quadruple its profit last year, buy, hold or a sell on Coronado?
Andrew Hamilton (SELL): We see it as a sell, just purely because it's a coking coal stock, and it's clear that they've got ambitions to grow, whether that's organic or inorganic, so M&A. I guess putting it in a nutshell, you can have a dividend or growth, but they're not going to have both.
Liberty Financial Group (ASX: LFG)
James Marlay: Andrew, we'll stay with you. Liberty Financial Group, it was floated back in 2020, and the share price has about halved since then. It has a trailing yield of about 13% or 12.5%. Buy, hold or a sell?
Andrew Hamilton (SELL): We're definitely a sell on Liberty. And the reason is this - they're not what's called an authorised deposit-taking institution like a bank. So they can't take deposits from people. That means their funding is not as cheap as a bank. And when interest rates go up, as we all know they have been, with the RBA raising rates, they can't pass through their higher cost of funding as quickly on their asset side and the yield on their assets to their customers isn't going up as quickly. So they're getting effectively a net interest margin crunch. So whilst the banks can potentially benefit in this phase of the cycle, we think non-bank lenders like Liberty have the opposite, they have downside.
James Marlay: Okay, it's a sell from Andrew. Pete, buy, hold or sell for you?
Peter Gardner (SELL): Sell from us as well, unfortunately. It's worth noting on that NIM, that Liberty Financial's NIM dropped by 10 basis points by the end of the last six months, more than it had during the entirety of the last six months. And this is where the banks' NIMS have been generally going up, albeit trailing off towards the end, and so you haven't seen that kind of flow through. So I agree with everything Andrew said.
Harvey Norman (ASX: HVN)
James Marlay: Okay, our next stock today is Harvey Norman, a popular brand with a lot of investors. It's trading at the bottom end of its range over the past 12 months, but the yield is in the high single digits on a trailing basis. Buy, hold or a sell?
Peter Gardner (SELL): It's a sell for us. So the problem with Harvey Norman is that in this kind of market environment where house prices have been dropping, people are spending less on furniture, and so that's a challenge for Harvey Norman. And because of their business model, where they have franchisees, it generally means that the headstock, Harvey Norman, gives more support to the franchisees in this environment. We'd much prefer JB Hi-Fi (ASX: JBH) if you wanted to get invested in this kind of brand name. They're much stronger. They just came out with sales results this week, which showed their sales are flat in this market environment, whereas Harvey Norman's sales have been dropping around 10%.
James Marlay: Andrew, over to you, buy, hold or a sell on Harvey Norman?
Andrew Hamilton (HOLD): I'm going to get some splinters on this one and say hold. Having said that, if I was forced to choose between a buy or sell, I would say sell. I don't have a major problem with Harvey Norman at the moment, the outstanding sales that they and other retailers had as a result of COVID, with no one being able to do anything apart from buy goods, that's really washing through. So you're seeing their like-for-like sales really starting to taper. We just don't have a very positive view on housing-exposed retailers at the moment. Harvey Norman's okay, there are just other stocks in the market with very similar yields that we have much more positive outlooks on.
James Marlay: Well, now's your chance. I've asked each of you to bring along the stock where you think there's an attractive high yield, but the share price maybe hasn't caught up so much. So Andrew, your opportunity, what do you want to pitch?
Ventia Services Group (ASX: VNT)
Andrew Hamilton (BUY): Well, my stock is Ventia, and I'm sure that many people watching haven't heard of it. They're a contractor. They IPO'd only a few years ago by their two owners, which were CIMIC and a private equity group. And in the IPO, they only sold about 40% of the stock. Although a contractor is not typically a solid dividend performer or one that's reliable, Ventia is a little bit different in that the vast bulk of their contracts are maintenance contracts, not construction. And they're five and seven-year contracts, quite long term. Most of them get rolled over. We see them as very well managed. They've been delivering very, very well. And so the yield we expect is somewhere around about 8.5% looking 12 months forward, we expect that yield is both sustainable and growing. Additionally, we think they're materially undervalued from a capital perspective, so we expect them to generate a really, really strong total return.
James Marlay: Dividend growth, capital growth. Pete, that's a tough one to beat. What have you got for us today?
Super Retail Group (ASX: SUL)
Peter Gardner (BUY): So my one to pick would be Super Retail Group. If you compare that with Harvey Norman, they've got similar kind of yields, but Super Retail is in a different industry, they're much more exposed to COVID openers, in terms of people going out and spending more on sports equipment, in the case of Rebel, Boating Camping Fishing, camping stuff like Macpac and Supercheap Auto as well. So they've got four good brands and their sales grew 15% over the second half of last year, and 10% so far this year, which is what they've reported so far. So still growing strongly in this environment despite those COVID-related purchases of goods going on. And you get a similar yield to what you get for Harvey Norman.
James Marlay: Okay, well, a couple of super ideas to finish that show on high yielding stocks. I hope you enjoyed it. Remember to check into our Buy Hold Sell YouTube channel. We're adding fresh content every week.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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