Since the Australian economy is still sending out mixed messages and there's not a clear indication of where it is headed in the next several years, consumers may decide to keep their hands in their pockets and not contribute towards a faster recovery.
Housing is up, but retail is down. Retail may improve for the holiday shopping season, but then again it may not be widespread. Car sales are down, yet travel customers are on the rise.
See what I mean?
Investors should be looking for value dividend stocks to ride this out. If share prices struggle, dividends will at least keep some portfolio income rolling in.
Here are two blue-chip stocks that I think offer good value now. One is catalyst based, so the potential value will depend on that catalyst happening fully.
National Australia Bank Ltd (ASX: NAB), one of the big four banks and well known for its business banking, could be making some big moves soon. In late October, NAB announced that it is planning to sell or even spin-off its loss-making UK businesses that have held back its earnings growth for some time now.
The bank's stock has lagged the other three big banks over the past 10 years, so focusing on its Australia business may mean that could be up for a change.
The Big Four Banks and a 10-year Stock Comparison Chart
Source: Google Finance
The stock is trading at 14.8 times earnings, which is toward the top end of its past PE range. It saw lower underlying net profit in FY 2014 after a strong surge of earnings in FY 2013. Consensus forecasts are for earnings growth to be around 16% annually over the next two years. The other big banks may just have low to mid-single digit earnings growth over the same period. NAB offers the highest dividend yield of the big four- a big 6.2% fully franked.
The catalyst for this improved outlook is the disposal of the UK businesses, which may take some time. Current shareholders will probably want to build up a position, but new investors may want to wait to see how this sell-off progresses.
— Suncorp Group Ltd (ASX: SUN) is another blue-chip that is set up for good dividend growth. Annual dividends in FY 2014 got a big boost from a special dividend, but that may not be the last of them.
As the company cuts more cost out of its operations over the next two years through its business simplification program, it intends to return surplus capital to shareholders. The stock pays a 5.7% fully franked yield now, but annual dividend income may increase over that time. It does have a higher PE ratio than competitor Insurance Australia Group Ltd (ASX: IAG), but that can be justified by the high-double digit earnings growth forecast in the next two years.
The stock has a good track record for dividend growth, so it may be a good fit for income-minded investors.
