Historically, falling markets send investors scurrying for cover. Some find their port in the storm by selling out and heading into cash while others look to move funds into safer havens.
In the past, quality high dividend payers have provided some buffer against falling markets.
At the moment, bad news stories abound – geo-political tensions, global growth concerns, European recession, inflation, deflation, central bank monetary policy, falling oil prices, and on and on.
Be prepared for volatility.
We searched the ASX for dividend paying stocks with a minimum 5% across the board in current yield (fully franked); 2 year earnings and 2 year growth forecasts; and 5 year average dividend growth.
The five year average dividend growth is important as it shows the company’s ability to maintain a dividend in difficult trading years, as we have experienced over the past five years.
In addition, we looked for reasonable valuations as overpaying for dividend stocks is best avoided. We looked for Forward P/E ratios under 15 and P/B ratios under 2.0.
We found only six stocks that fit these admittedly tough criteria.
However, these are tough times that may get tougher.
Here is the table with the stocks ranked from highest to lowest two year dividend growth forecast.
Div Growth F’cast
2 Yr Earnings Growth F’cast
Avg Div Growth
Automotive Holdings Group
Bank of Queensland
Bendigo and Adelaide Bank
Skilled Group (SKE)
Given the drop in mining construction spending over the past few years, general contractors Brierty Limited (BYL) and Cardno Limited (CDD) are surprising entries to our list. With a market cap of only $47 million, Brierty is dwarfed by rival Cardno with its market cap of $920 million, but both have taken shareholders on a wild ride over the last five years. Here is a price movement chart comparing the two.
While both serve the mining industry, both are broadly diversified, with Cardno providing services to nine market sectors beyond mining and Brierty in two others. In addition, Brierty’s mining business involves maintenance services, unlike Cardno’s operation which involves construction design and planning as well.
Brierty also operates in residential land development and civil infrastructure. In August 2014 the company announced two new road building contracts in Western Australia, totaling around $62 million in revenue. Brierty counts among its mining maintenance customers all of Australia’s big three iron ore miners, BHP Billiton, Rio Tinto, and Fortescue Metals; along with gold miner Newcrest Mining and others. The company reported Full Year 2014 results in August, showing declines in both revenue and profit but delighted investors with its 2015 forecast of a $300 million dollar revenue increase. On 10 September Brierty declared a special dividend payment of $0.08 per share along with the announcement of an $8.25 million capital raise to institutional and high net worth investors designed to improve liquidity and strengthen the company’s cash position. Brierty’s Forward P/E of 4.53 and a book value per share of $0.54 are attractive numbers.
Cardno offers its customers a wide variety of professional services ranging from engineering planning and surveying to electrical engineering. The company operates globally with offices in Australasia, the Middle East, Africa, Europe, the UK, and North and South America. Cardno serves ten target markets, including energy and resources, transportation, infrastructure, defense, water, costal and ocean, buildings, land, emerging markets, management consulting and services. In March 2014 the company expanded its presence in the US with the acquisition of a specialist engineering Services Company operating in the oil and gas sector in the United States, West Africa and the Asia Pacific region.
The acquisition helped Cardno report a Full Year 2014 revenue increase of 9.6% while net profit after tax (NPAT) was essentially flat in a difficult year, increasing only 0.6%.
The federal government has supposedly pledged an Infrastructure Growth Package with an additional $11.6 billion for transport infrastructure. The precise timing of the spending is uncertain but both Cardno and Brierty could benefit.
Automotive Holdings Group Limited (AHE) is the only retailer that met our stringent criteria, but the company also offers logistical services including warehousing, repair, and refrigerated transport. The company owns and operates over 150 car and truck dealerships throughout Western Australia, New South Wales, Victoria, and Queensland. Automotive Holdings Group boasts the biggest network of auto dealerships in Australia and with recent acquisitions is now the largest operator in refrigerated transport and warehousing as well.
Automotive Holdings is not in a business that gets the blood pumping, but the company produces results. It began paying dividends in FY 2006 and has increased payments every year since. Revenues and profits have increased every year over the last three years. The average annual rate of total shareholder return over the past three years has been 26.7% and over five years investors realised an average annual rate of 17.6%. Over ten years, the share price is up more than 200%. Here is ten year price movement chart for AHE.
None of the big four Australian banks made our table, but the two regional banks boast some attractive numbers. With a market cap of $5.2 billion, Bendigo and Adelaide (BEN) is the larger of the two, with price performance numbers that surpass CBA. Here is a chart comparing the two.
The Big Four Banks have performed well for investors over the last several years but a major concern for the future is earnings growth. Here are the two year earnings growth forecasts for each of the Big Four:
• Commonwealth Bank of Australia (CBA) – 5.6%
• Westpac Banking Corporation (WBC) – 4.9%
• Australian and New Zealand Banking (ANZ) – 10.7%
• National Australia Bank (NAB) – 5.7%
Bank of Queensland beats those numbers with earnings growth forecasted at 18.1% over two years. BOQ has a very strong regional base and is expanding into other states. Bendigo and Adelaide is not quite as impressive at 11.8% but the bank reported solid financial results and reportedly is increasing its deposit portfolio faster than any of Australia’s banks, large or small. In addition, BEN announced on 13 October it was acquiring a 10% stake in Cuscal, one of the leading payment providers in Australia.
The final stock to meet our criteria is staffing and workforce solutions provider Skilled Group Limited (SKE). The company has three operating divisions – Workforce Services; Technical Professionals; and Engineering and Marine Services. The company offers full-time and contract employment along with project management and related staffing services to an impressive array of business sectors, from industrials, mining and resources, energy, telecommunications, defense, food and pharmaceuticals, to health care.
Skilled Group benefited from the workforce needs of the resources sector and the end of the days of heavy investments in mining expansion has led to steep declines in the need for contract work and project management services. The company’s NPAT dropped from $56.2 million in FY 2013 to $44.2 million in FY 2014, but increased its dividend payment.
Diversification apparently accounts for the SKE’s earnings growth forecasts as the company made a key acquisition early in the year to expand its maintenance service offerings and announced on 23 September a $200 million dollar contract for an LNG project in Darwin.
The company’s five year average dividend growth of more than 10% is impressive in light of the challenges of the mining slowdown and the volatile share price. Here is a five year price movement chart for SKE.
Skilled Group management has been aggressively pursuing cost reduction measures and additional opportunities in the oil and gas sector and infrastructure sector. In addition, while the mining construction boom may be over, mining production by the big three iron ore miners is ramping up, leading to opportunities for maintenance and related services.
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.