This table below shows you the top 10 holdings of the Contango Income Generator, which is managed by Shawn Burns, who also does a lot of the stock selecting for the Switzer Dividend Growth Fund. In our weekly editorial meeting last week, I suggested a lot of our readers would like to see some good dividend stocks outside the top 30 stocks, which are often the focus of so many market commentaries.
The fact that Shawn has such a heavy bias towards these stocks suggests that history has told him that they are reliable dividend payers, or else look poised to do so in the future.
What lies beneath?
So let’s have a look at these companies through a number of lenses.
Let’s start from the top and examine the best five of these top 10 holdings.
The problem I have with ASX is that its current price is $67.64 and the analysts’ consensus target is $56.93, so that’s a potential 15.8% capital loss. I’d prefer to pick this one up after a big sell off of the overall market.
Bank of Queensland (BOQ) is in the same category but the predicted downside from experts is 7.1%.
Tabcorp Holdings (TAH) is the first interesting bite for someone fishing for a reliable dividend payer, with potential capital gain upside. It’s currently priced at $4.80 and the experts see it as a $5.23 stock, so that would be a 9.1% upside. A lot of its foreign rivals in the online betting space are also turning tail and going home, or merging, to try and make their businesses better bets! Its current yield is 4.3%, with 100% franking. This is a goer for dividend-stock collectors.
Bendigo and Adelaide Bank (BEN) is now at $11.59 and the consensus guess is for $10.93, or a 5.6% downside. However, the 100% franked stock pays a dividend of 5.83% and, given that banks are starting to raise rates, I reckon this passes the test of a dividend payer worth trusting.
CARSALES.COM (CAR) surprises many figuring prominently in an income generator LIC and, with a 2.8% dividend, it doesn’t pass my test now. But Shawn Burns explained that he picked this up when the market fell out of love with the stock. It’s currently priced at $15.50 and has a 2.3% downside, if the experts are right. The stock was as low as $12.83 in September last year and meant its dividend-yield was then 3.4%, with a 100% franking. And given the potential capital gain, this explains why it got into Shawn’s stable of stocks. That said, it’s not for us now, if we’re hunting for yield.
Royal Commission pressure
Here’s a company under Royal Commission pressure in IOOF (IFL), and it looks like an interesting bet, with experts at FNArena thinking its current $8.40 price could grow to $10.86, which would mean a 29.3% gain! The dividend yield is now 6.4%, with 100% franking. But you do have to recognise that the post-Royal Commission regulations and penalties could hurt this company.
That said, over the year, the share price has fallen from a high of $11.44, so maybe this is a quality stock that has been over-beaten up by the market. Once again, this is a tricky issue for an investor to mull over but I wouldn’t be afraid to have this company in a portfolio of 15-20 stocks, especially at the current price.
Caltex (CTX) was taken to the cleaners during the week but it has been a bit of a darling of the experts of late. Back in January, this was a $35.79 stock and now is $30.21. The experts see it at $33.73, which means it could have an 11.7% rise ahead of it. This 100% franked-dividend company has a yield of 3.9% and grossed up looks reasonably attractive.
Spark Infrastructure Group (SKI) is often mentioned when dividend payers are the subject of interest. FNArena’s panel sees a 2.6% gain from the current share price of $2.40 and its yield is 6.45% but there is zero franking. However it does look like a goer for dividend-stock collectors.
Another darling of yield-lovers is Charter Hall Group (CHC). The experts think the current share price of $7.12 is 6% too high. The dividend-yield is 4.4% and only has 30% franking credits, so it’s a line ball company, given what I/we are searching for.
The final company for the Switzer microscope is Adelaide Brighton (ABC), which is priced at $6.44. The panel tips a 6.2% downside. The yield currently is 4.5%, with 100% franking. It sneaks in as a possible stock for my top five dividend payers outside of the top 30 stocks.
So here’s my final list.
These five stocks could give an average yield of 7.28% and, if the experts are right, could bring a reasonable capital gain, with the risers more than offsetting the potential fallers.
Next week, I will look at the holdings above the top 10, where the dividend yields are greater than the ones presented above.
And one last thing, the Switzer Listed Investment Conference is back! Next week we’ve brought together a collection of Australia’s best money managers to find out how they’re investing and where they see value in the current global environment. As a subscriber to this Report, you can access a complimentary ticket (or two!) to come join us. There’s only one week remaining – so make sure you don’t miss out! To access your free ticket/s, click here , choose the event you’d like to attend in your State and enter the promotional code ‘SSR’ on checkout. I hope to meet you there so come up and say “hello”.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.