Myer Holdings Ltd (ASX: MYR), Metcash Limited (ASX: MTS) and Telstra Corporation Ltd (ASX: TLS) are companies which many Australian investors are familiar with.
In low interest rate environments big dividend stocks such as these three are usually in high demand. However, in the past 12 months none of these companies' share prices have outperformed the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO). When dividends are included, Telstra has outperformed the market but only marginally.
So should you be buying now? Or do these businesses have their backs up against the wall? Here's what you can expect from these big dividend payers.
Myer (Dividend Yield: 6.5% fully franked)
Department store operator Myer has recently been in and out of the media spotlight for a number of different reasons. Since listing on the ASX back in 2009, not much has seemed to go right for the retail giant. What's more, Myer has been slow to react to the online shopping craze and failed to recognise the industry dynamics at play. As a result, I expect sales, profits and dividend will be down on last year. Value investors might find Myer appealing at current prices but, despite making it my top stock pick for December, I feel Myer will struggle to beat the market from here on and I've since sold my shares.
Metcash (Dividend Yield 5.2% fully franked)
Metcash is an owner and wholesaler of supermarket, automotive and hardware products. It operates well-known brands such as IGA, Mitre 10, Cellarbrations and Autobarn (to name just a few). Metcash can be considered a third wheel to the diversified Australian retail duopoly that is Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASXL WES) – the owner of Coles and Bunnings Warehouse. As a result of the ongoing price war between the two giants, an expansion of the Masters store network and introduction of better supermarkets such as Costco and Aldi, Metcash's earnings are tipped to fall. Although there will be a place for small convenience type stores and IGA supermarkets, Metcash's entire portfolio of businesses is facing a number of risks. As such to buy in now could be like catching a falling knife.
Telstra (Dividend Yield: 5.4% fully franked)
As Australia's largest telecommunications company, Telstra has the ability to spend big on exciting technology developments and infrastructure projects. This has enabled it to retain and grow its number one spot in the mobile, fixed internet and pay-tv markets. Thanks to its huge cash flows and lucrative payments from the government's NBN Co, Telstra will now look to expand its presence into Asia. CEO David Thodey has a goal of deriving a third of revenues from the region by 2020. Although Telstra shares trade on a seemingly high valuation, long-term investors could find value in its shares at current prices.
