Woolworths Limited (ASX: WOW), Coca-Cola Amatil Ltd (ASX: CCL) and Westpac Banking Corp (ASX: WBC) are again caught in the crosshairs of bargain hunters, who are searching for juicy fully franked dividend yields.
Data sourced from Yahoo! Finance.
Indeed, with their shares down 17%, 8.7% and 9.5%, respectively, since the beginning of 2015, yield-hungry investors may be staring a gift horse in the face.
Woolworths
To say Woolworths' share price has fallen in recent times would be an understatement because it's down an enormous 30% in 12 months. Investors have been spooked — perhaps rightly so –- about the supermarket owner's ability to grow, or even survive, in the increasingly competitive grocery market. At a price-earnings ratio of just 13x and with a dividend yield of 5.5% fully franked, Woolworths shares appear dirt cheap. However, at their current price of $25.41, I'm not prepared to call them a bargain because my intrinsic value estimate is $28. Therefore, prudent value investors might be inclined to demand a wider margin of safety (between the share price and the intrinsic value) before buying in.
Coca-Cola Amatil
As Australia's, and five neighbouring countries' distributor of Coca-Cola products, there's much to like about Coca-Cola Amatil. The company also has an exclusive agreement to distribute Beam products in Australia until 2023. Despite its ability to sell one of the world's most recognisable brands, Coca-Cola Amatil has reported falling profits and reduced margins over some years. And while the new management team has sought to allay investors' concerns of a structural decline in the fizzy drink market, it appears the sharemarket is still prepared to let the stock trade at a discount to its theoretical worth. At today's prices, Coca-Cola is offering a partly-franked dividend of 5%.
Westpac
Westpac shares have fallen 20% over the past six months as a number of headwinds plagued all banks. However, Westpac is the biggest lender to housing investors of the major banks, so when APRA (the banking regulator) announced a mandatory increase to the risk weightings for those particular loans the market rightly discounted its share price. Then there was the announcement of a potential increase to the capital reserve levels of the banks.
While some commentators suggest shares in the major banks are 'cheap' because they trade on price-earnings ratios of around 12x, the recent share price declines should remind all investors that there is more than meets the eye with bank stocks (N.B. using a P/E ratio to measure the value of a bank stock is fraught with risk). Indeed, I do not believe Westpac shares are cheap. In fact, I think they're still expensive at today's prices, especially when we consider the bleak economic outlook will likely put a dampener on profit growth.
Data sourced from Morningstar; 'ASX200' represents S&P/ASX200 (index:^AXJO) (ASX: XJO).
Buy, Hold or Sell?
Despite recent falls in share prices making each of the three aforementioned blue chip stocks look far more appealing investments, investors should be mindful of the risks to every investment before buying in. At today's prices, I think Coca-Cola Amatil is the best value of the three, followed by Woolworths, then Westpac.
