G'day Foolish readers,
So much for the imminent stock market crash…
Overnight, for the second day in a row, the Dow jumped more than 100 points higher.
A few more days like that and it will be back through 18,000 and heading back towards yet another record high.
Here in Australia, yesterday the S&P/ASX 200 Index jumped 0.7% higher, closing at 5,624, with the AFR saying…
"Australian shares rode a wave of improved global sentiment on Wednesday, with all sectors finishing in positive territory, as investors ready for next week's earnings season."
"Sentiment" is not done yet, the benchmark ASX index jumping another 35 points higher in morning trade, with BHP Billiton Limited (ASX: BHP) shares leading the charge.
With the iron ore price jumping 20% higher in recent days, and with BHP shares trading on a whopping 6.2% fully franked dividend yield, the market looks to finally be seeing the light.
6.2%. Fully franked. I bet you didn't know that about BHP Billiton's dividend.
Just to make sure we weren't missing something ourselves — especially given the recent demerger of South32 Ltd (ASX: S32) — we emailed the BHP Billiton investor relations, just to check.
Sure enough, they confirmed what we were seeing.
BHP declares its dividend in US dollars. The lower the Aussie dollar, the higher the BHP dividend, in Aussie dollars.
BHP Billiton will maintain its progressive dividend policy.
BHP Billiton does not plan to rebase its dividend as a result of the South32 demerger.
A 6.2% dividend yield. It's real.
Add it all up, and with BHP shares potentially being re-rated as the market finally wakes up to its 6.2% "progressive" dividend, the next stop for the ASX could be 6,000.
Before Christmas?
I wouldn't bet against it. When "sentiment" starts to roll, anything is possible.
Keen Motley Fool Take Stock readers will remember it was just over a week ago when the AFR quoted Credit Suisse as saying it expected the S&P/ASX200 Index will reach 6000 points by mid-December.
These past couple of months, three things have been holding back world markets. But not for much longer. Hold onto your hats, Foolish investors.
1) Greece, and the possibility of them exiting the euro.
That fear is so firmly in the rear view mirror that the AFR reports RBS is recommending clients buy five year Greek bonds. Earlier this month, Greece's two year borrowing costs peaked at over 58%!
2) Chinese stock market volatility.
This one is a little more unpredictable. On the one hand we've got Chinese punters treating their local stock market as a casino. Exacerbating the volatility, they are borrowing money, punting on margin. There's no surer way to bankrupt yourself.
On the other hand, you've got the Chinese government trying to stabilise the stock market. That rarely works, and rarely ends well.
On top of all that, you've got highly respected investors like Platinum Asset Management Limited (ASX: PTM) chief executive Kerr Nelison saying the Chinese and Indian share markets offer compelling investment opportunities.
In other words, look through the volatility and look at "the energy and ingenuity of the people of this region, which hosts about half the world's populationand yet is conspicuously under-represented in most global portfolios."
3) Rising US interest rates.
While Australian investors fixate on the price of iron ore, American investors have been playing a guessing game with Janet Yellen. Will she or won't she raise interest rates in September?
That little game of cat and mouse is about to end.
The bottom line is this — US interest rates will rise this year. That's a given. It's the pace of the increases that counts.
Here's all you need to know about the pace and scale of US interest rate rises — the Federal Reserve's own projections are that US interest rates will be just 1.625% at the end of 2016.
No wonder then that Goldman Sachs CEO Lloyd Blankfein said US markets are poised for a period of prolonged growth.
Quoted on Bloomberg, Blankfein, the freshly-minted billionaire said…
"It will be jarring when we see an interest-rate hike because we haven't had one for some time, and then I think people will get out the smelling salts, take a big sniff and recover."
The old saying goes that when Wall Street sneezes, the ASX catches a cold.
What about when Wall Street sniffs the smelling salts?
What will it take for ASX investors to finally wake up from their post GFC slumber?
Even lower Australian interest rates? CLSA analyst Brian Johnson says the RBA now has the flexibility to cut the cash rate by up to 75 basis points.
It may be yet another killer blow to savers and retirees, but given the economy's slowing growth rate, and that Australia still has one of the highest interest rates in the world, a RBA cash rate of just 1.25% is definitely plausible.
No wonder then that Kaizen Capital says the Aussie dollar may hit US50 cents!
Better book that dream trip to the Grand Canyon and Vegas now.
Better also grab some more high-yielding ASX stocks, before their dividend yields get driven into the dirt by income starved investors.
Take Telstra Corporation Ltd (ASX: TLS) for example. Back in early June, when Telstra shares were trading close to $6, I said…
"It's not the cheapest company in the world. It's not the fastest growing company on the ASX. But it does trade on a fully franked dividend yield of 4.9%, which grosses up to 7%."
Fast forward to today, and Telstra shares now trade at $6.45, a nice little capital gain for investors who were willing to look past the Greece crisis and take the plunge. The dividend is on top.
Today, Telstra shares are still not cheap. But they do still trade on a forecast fully franked dividend yield of 4.65%.
And compared to term deposit rates, which could fall as low as 1.25%, that Telstra dividend yield remains very compelling.
Pass the smelling salts…
Until next time, as ever, I wish you happy and profitable investing.
