Today's the day.
The pundits are lining up to predict the Reserve Bank of Australia (RBA) will cut the cash rate to just 2 per cent.
The share market has spoken too, the S&P/ASX 200 Index jumping higher in morning trade.
By the time you read this, it could be a done deal. Or not.
Whatever the RBA decides today, nothing changes about the long-term outlook for Australian interest rates.
They are low, and staying low.
Get used to it. If it's income you're chasing, it's dividend stocks you need. You simply have no choice but to take on more risk.
The RBA is between a rock and a hard place.
Cut rates and you risk further fuelling the housing bubble. Stick at 2.25 per cent and the currency markets will drive the Aussie dollar higher, further weakening our already struggling economy.
My bet is they cut. The financial markets have already effectively priced it in. The shoe is on the other foot. They are jawboning the RBA, daring them NOT to cut, when it's often the RBA doing the jawboning.
My bet is Glenn Stevens is done with talking. Actions speak louder than words. If he's serious in driving the Aussie dollar down, for the good of our economy, he must cut interest rates.
Cut or no cut, the air isn't coming out of the housing bubble by itself. For that to happen, we need something bigger. Like changes to negative gearing. Or restrictions on gearing within SMSFs. Or changes to capital gains tax concessions.
Fat chance of any of that lot happening. Today's politicians are putting their own jobs above any meaningful economic reforms. Meanwhile, Rome burns, our expenditure far exceeding our revenue, our jobless rate yet to peak.
It's one reason why interest rates are staying low for the foreseeable future. Tinkering around the edges of the budget changes nothing. Deficits for as far as the eye can see.
Still, there's no use whinging and whining. Like a rocking chair, worrying gives you something to do, but doesn't get you anywhere.
The other reason interest rates are staying low for the duration is even slightly higher interest rates will unleash a whole world of pain for the leveraged-up mortgage belt.
As reported in The Sydney Morning Herald, a Wesley Mission study "found spending outstrips earnings for more than one million NSW households, and 44 per cent are in financial stress. This includes being unable to pay bills on time, afford medical treatment or home maintenance and going without meals."
Quite staggering. And these aren't all your typical lower socioeconomic groups either — a quarter of households in financial stress are middle income earners, some households earning $100,000.
Just say no to debt, particularly to running revolving balances on your credit card, and to personal loans. It's easy to put the Bali holiday on the credit card, incredibly hard, and expensive, to pay it off.
My guess is few such battlers are reading this. They'll be too caught up keeping up with the Joneses — private schools, new Apple Watch and Lexus LX — to be bothered with the quaint art of saving.
The people who are reading this are likely savers. They want to make money, some quicker than others.
For the get-rich-quick readers amongst you, stop reading now. You've come to the wrong place.
Give the casino a try. Pokies. Penny shares. Speculative mining stocks. Try them all. When you've done you dough, decided there is no silver bullet, come back and gives us a try.
We'll show you how to get rich slowly. We'll have some fun along the way, watching the share market go up, down and sideways.
We'll pick up some bargains. We'll bag some big winners. We'll curse the odd losers too. All the while, year by year, watching as our wealth slowly but surely compounds higher and higher.
We'll bank our fair share of dividend cheques, generating us a very handy income.
We'll beat the taxman, through fully franked dividends, and a 50% discount on capital gains tax for assets held for longer than a year.
We'll save more than we earn. We'll salary sacrifice into our superannuation.
We'll splurge on a new car or an overseas holiday after we've saved for it, not before.
We'll set ourselves up now to earn a decent income in retirement — buying quality ASX stocks paying regular, rising and reliable dividends.
The earlier we start investing, the better.
Those people who bought Woolworths Limited (ASX: WOW) at its IPO back in 1993 at $2.45 are today earning a 55% fully franked dividend yield on that initial purchase price.
Those people who bought Commonwealth Bank of Australia (ASX: CBA) at its IPO back in 1991 at $5.40 are today earning an almost 75% fully franked dividend yield on that initial purchase price.
No wonder there are so many CBA millionaires out there. With dividends reinvested, a relatively modest initial investment in CBA would today be worth a small fortune.
Good luck to them, I say. Australia has been recession-free since the day they bought CBA. It simply doesn't get any better. No wonder Australian investors have a love affair with the banks.
But maybe for not too much longer.
Two funny things happened yesterday.
Funny that is, unless you are overweight Australia's big four banks.
To say first half results from Westpac Banking Corp (ASX: WBC) were disappointing would be an understatement.
Let me be clear — given ultra-low interest rates, the red-hot property market and the low levels of bad debt, these conditions should virtually be "as good as it gets" for the big four banks.
You can go through Westpac's 147 page presentation pack if you like, or you can just focus on these two numbers and this one statement…
- Earnings growth: 0%
- Dividend growth: 3%
- "The Group has indicated its intention to lift capital levels"
It may not be a case of the Emperor suddenly having no clothes, but one thing is for sure — the market has finally woken up to the risks in owning bank shares, and that the dividend gravy train is grinding to a halt.
Don't get me wrong — at 5.1%, the Westpac fully franked dividend yield puts the returns on term deposits to shame. But the big four banks are most definitely NOT a risk-free investment.
If you're a regular Motley Fool Take Stock reader, you'll know that already. You'll also know you need to diversify your portfolio away from it's heavy weighting to the banks.
Now, finally, you might be starting to realise you need to take action. Can I boldly suggest you might get some non-bank ASX dividend paying stock ideas from Motley Fool Dividend Investor?
The other funny thing that happened was BHP Billiton Limited (ASX: BHP) shares rising 2.6% to close above $33.
Funny because the S&P has just cut BHP's rating outlook to negative from stable due to weakness in commodity prices and the miner's dividend policy.
Seems the market doesn't want to know about it. Or doesn't care.
Seems also the market has shrugged off the weak iron ore price — BHP's shares are up over 13% so far in 2015.
Who'd have thought? BHP out-performing the big four banks.
The Big Australian has shown a few other of the market's dividend darlings a clean pair of heels in 2015, including Insurance Australia Group (ASX: IAG), Woolworths and Telstra Corporation (ASX: TLS).
Regular Motley Fool Take Stock readers might remember I went on the record — numerous times — saying I was interested in buying BHP Billiton below $30.
For me, in this low interest rate environment, the fully franked dividend yield of above 5% was almost too good to refuse… plunging iron ore and oil prices or not.
Chasing yield on mining stocks is fraught with danger. Yields are normally highest when earnings are at a peak. In this highly cyclical business, the only way is down. A high dividend yield is often a precursor to a dividend cut.
Not so with BHP Billiton — to date anyway. One of the first things the new CEO, a frugal Scotsman named Andrew Mackenzie, did was to publicly commit to maintaining BHP's progressive dividend policy.
To do otherwise was to admit defeat. My bet was this frugal Scotsman was not for turning. To be fair, few Scots aren't frugal.
So far so good.
Today, at $33, BHP's shares trade on a fully franked dividend of around 4.4%. Decent.
The forecast P/E is 18. Expensive.
The iron ore price is likely to come back under further pressure in the months and years ahead. Offsetting that, to some extent, should be a weakening Aussie dollar.
I wouldn't be in a hurry to buy any more BHP shares.
Any case, I'd rather add more diversification to my family's portfolio. Too much of a good thing, especially when it comes to cyclical mining stocks, can be harmful to your wealth.
