Buy Hold Sell: 5 stocks slashing their dividends

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we're taking a look at five companies that have recently announced they'll be slashing their dividends. Is it still worth investing in these stocks? To find out, we're joined by Michael Price from Ausbil and Reece Birtles from Martin Currie. 

First up today we have Dexus which slashed its dividend by 7% at its result in August. It's expected to fall a further 22% in FY25. Not great. Reece, I'll start with you today. Is it a buy, hold or sell?

Dexus (ASX: DXS)

Reece Birtles (SELL): It's a sell. We'd say the dividend yield after the cut is about 5%. Interestingly, that is less than the cap rates on the direct office properties that they can buy or sell, that's very unusual. Normally, the listed office assets are trading cheaper than the unlisted, but the company is having to retain cash and reinvest in the business into lower yielding assets, and it wants to become a fund manager because it's not making a decent return out of its own investments. So for these reasons, we think they're under quite a bit of pressure.

Ally Selby: I feel like the market might not have cottoned on to that. It did fall 9% on the result, but it has recovered since then. Over to you, Michael, is it a buy, hold or sell?

Michael Price (HOLD): We'd say it's a hold. So the fact that they did cut their dividend, not because of lower earnings, but to reinvest in the funds management business, we see that as at least a better reason than just having earnings going backwards. We do see it as reasonably cheap, a 20% discount to NTA. On the other hand, we don't see much earnings growth for the next year or two. Don't see any real catalyst, certainly not from the bottom up. So while we don't mind holding it, you don't really need to buy it right now.

Ally Selby: Okay, next up today we have Healius which announced it would be slashing its dividend completely at its result in August. Is it a buy, hold or sell?

Michael Price (HOLD): Healius is also a hold. I think there's a lot of moving parts there. So certainly a disappointing result and we think there might be one more downgrade to come. On the other hand, we quite like the new management. We do think they can turn things around and, in the long term, it might be looking better from a bottom up point of view. If they can sell the imaging business that should fix the balance sheet and that's certainly a good thing. But then again, on the other hand, the market has certainly liked that and the share price has run very hard over the last little while. So I think it looks a little expensive right now and with perhaps another downgrade to come, there's no need to buy it right now, but the longer term prospects are okay. So it's a hold.

Ally Selby: As you mentioned, it has been on a run recently, its share price has lifted around 13% since announcing its result. Reece, over to you, is it a buy, hold or sell?

Reece Birtles (SELL): For us, this is a sell. The question is it a cyclical decline or structural? And we think this is structural. The company has made very poor capital allocation decisions over time. They paid too much for the business and so they've under invested in it over a long period of time. It's caused them to have to go down market into commodity-type testing which has put more and more pressure on their margins. And now they're selling their best asset to try and fix the balance sheet. We don't really believe that the governance and the management team really have the right experience for this business. So it's a sell.

Ally Selby: Last up today we have Pilbara Minerals which also announced that it would be slashing its dividend completely. Last one for you today, is it a buy, hold or sell?

Reece Birtles (BUY): It's a buy. I don't think you're going to get any dividends for quite a period of time. So it's not about buying the dividend, but the lithium price is at very low levels at this point. At least a third of world production is unprofitable. So I'd think of it more as a value-type stock. But we do think as more and more production is shut off, the lithium price can improve and Pilbara does have a good business going forward.

Ally Selby: Off the back of the result, all the major brokers lowered their targets on Pilbara Minerals. The stock has fallen around 22% since then. Last one for you today, Michael, is it a buy, hold or sell?

Michael Price (BUY): I'd agree. I think it is also a buy. They slashed their dividend in order to protect the balance sheet, but the balance sheet's still reasonably strong. There's no risks there. We're comfortable with the longer-term outlook for the lithium price as the unprofitable supply comes out of the market. And we think there will be strong demand for lithium, for batteries, and electrification. And as we said, they've got great assets - one of the best lithium assets in the world. So, it might take a little while to get there, but happy to buy it here.

Ally Selby: Okay. We've asked our fundies to bring along a stock that has slashed its dividend, but they still think it's a buy. It's a little bit of a challenge for our guests today. Michael, what have you brought for us?

Michael Price (BUY): I've gone with BHP. Yes, it has had to cut its dividend on the back of a lower iron ore price, but it is very committed to paying out at least 50% of its profits into dividends. And they've certainly indicated that, in terms of longer-term growth, they really see dividends as a priority. They know they're valued by Australian investors. They're happy to increase their debt levels rather than cut their dividends to fund longer-term growth.

Ally Selby: Okay, over to you, Reece, what stock are you buying today even though it's slashed its dividend?

Reece Birtles (BUY): I've definitely come with a high risk, high reward one for you, which is Fletcher Building. It's cut its dividend to zero. It seemed to be under quite a bit of stress, but we really think it's about the cycle primarily in New Zealand where they've had a lot more impact from higher rates. The economy has been under a lot more stress in terms of construction. They're ending some of their construction projects that have been difficult. And they have a strong land bank that we think that they can monetise value to protect the balance sheet. It's not going to pay any dividends in a while, but we think it's an undervalued stock on the back of those dividend cuts.

Ally Selby: Well I hope you enjoyed that episode of Buy Hold Sell as much as I did. If you did, why not give it a like? Remember to subscribe to our YouTube and podcast channels. We're adding so much great content just like this every single week.