Whenever I tell someone I analyse and write about stocks for a living, do you know what their first question is?
Everyone I speak to, wants to know the latest 'hot' tip that'll make the big gains sometime in the near future. You've probably seen it before…
When you're at a barbeque or dinner and your friend says he or she knows a guy, who knows a guy that knows someone who works for an investment bank or broker. Sounds too good to be true, right?
It's as good as sure thing = belly up in 12 months.
I've learnt the hard way that giving out free advice, can be very, very costly. For both thy friend and thyself.
The advice is costly for two reasons.
Firstly, there's a chance the hot tip will flop. That's obvious.
But secondly and perhaps more importantly, when you don't know why you're invested in something, there's a certain mental anguish which follows you to sleep at night.
Given that behind every three letter stock code is a company, imagine if you bought a real business (say, like a shop down the street) simply because someone told you to. Chances are it's not going to work out well.
So when I give you my top 10 dividend picks, remember, they're anything but guaranteed and if you decide to go ahead and buy them, first ask yourself why you're buying it, identify the risks and how long you'll hold it for…
Blue chips
- Australia and New Zealand Banking Group (ASX: ANZ) is our third largest bank by market capitalisation. Of the big four retail banks, it has the greatest exposure to Asia. However whilst its 5.7% fully franked dividend yield is enticing, particularly in the low interest rate environment, I'd like to see a price well below $30 per share before buying in.
- Coca-Cola Amatil Ltd (ASX: CCL) is Australia's (and neighbouring countries') bottler and distributor of Coca-Cola and Beam branded products. Whilst I don't agree with those who say the market for fizzy drinks is vanishing quicker than waste lines, I also don't believe Indonesia – CCA's 'key' growth market according to some financial commentators – will be the company's saving grace. Yes, the hugely competitive country has a population of 237 million. But 10% live below the poverty line and approximately half remain "clustered" around the national poverty line of $16.60 per month – according to the World Bank. In addition to other factors therefore, I believe CCA has its work to do domestically and could be good value for income investors in 2015, but don't expect it to be your greatest investment. I expect it to pay around 39 cents per share as a dividend, putting it on a forecast 4.2% partially franked yield.
- Telstra Corporation Ltd (ASX: TLS) is a $74 billion telco giant. In the past four years its share price has more than doubled and today it sits just a whisker off its 13-year high. At current prices, I don't think it's a buy. However it deserves to be at the top of your watchlist for the outside chance of heightened volatility in the year ahead. Telstra is growing in Asia, through strategic investments and JV's (joint venture partnerships) and continues to dominate the local telecommunications market. I doubt it'll get to my target price anytime soon but well below $5.00 would be a good price to pay.
Mid-caps
- Veda Group Ltd (ASX: VED) is not, like Telstra, a compelling buy at today's prices, but the recently-listed data analytics provider is at the very top of my buy list for when its share price does drop. Although the company's 2.2% dividend yield may not seem like much now, Veda has a wide and growing economic moat and I believe it will continue to grow its earnings and dividends per share for many years into the future. If you're new to valuation, just ask yourself, hypothetically, as a local businessperson would you be prepared to pay 33 times last year's profits for a credit reporting agency? I wouldn't.
- Ardent Leisure Group (ASX: AAD) is a leisure and entertainment business best known for its ownership of AMF and Kingpin bowling, Goodlife Health Clubs and Dreamworld. However it is also the owner of the growing Main Event business in the US. It's an all-in-one indoor family entertainment centre which includes laser tag, bowling, restaurants and arcades. In 2015 I believe it'll provide a healthy lift to group earnings. It yields 4.6% unfranked.
- Village Roadshow Ltd (ASX: VRL) is also exposed to the US entertainment and leisure scene through a number of business channels. It's the owner of theme parks Wet'n'Wild, Movie world and Sea World and is part owner of Village Roadshow Entertainment, Village Cinemas and more. The latest falls in its share price have provided a good buying opportunity for long-term investors. It's expected to pay a dividend equivalent to a 4.5% yield in 2015.
- M2 Group Ltd (ASX: MTU) is the owner of Dodo, Commander, Primus and Eftel. Whilst Telstra may be out of the buy zone, M2 is a telco definitely still in it. Although the company has risen strongly in the past five years – largely a result of an aggressive acquisitive growth strategy – in the future, it will continue to expand its utilities offering into services such as power and gas, insurance and more. It yields 3.4% fully franked.
- Credit Corp Group Limited (ASX: CCP) is Australia's largest receivables management company, with a market capitalisation of $450 million. If the economy continues to struggle in the year ahead, I expect Credit Corp to be a net beneficiary. Just recently the company upped its Purchased Debt Ledger (PDL) guidance for the coming year. Although the increased PDL guidance and its US expansion will take time to bear fruit, I think Credit Corp is a good buy today. It's currently offering a 4.1% fully franked dividend.
Small-caps
- Altium Limited (ASX: ALU) designs and develops electronic products for the design of circuits that will service the ever-expanding technology landscape. The $370 million company is headquartered in the US and does not pay franking credits. However it offers a great blend of long-term growth potential and dividend yield – currently 4.2%.
- Collection House Limited (ASX: CLH) is another receivables management company which, like Credit Corp, has grown strongly over the past five years. It currently boasts a 4.1% dividend but has grown this reliably and continually over the past seven years. In 2015, I expect more of the same and at today's prices it appears a good long-term buy.
Approaching 2015, I'd be glad to hold a number of these companies in my share portfolio. If you're prepared to do the same, it's essential to understand why you hold them. In addition with the Australian economy expected to enter a rough patch in the near future, it's imperative that you pay close attention to valuation and carefully scrutinise a company's business model.
