"Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed." – Seth Klarman, The Baupost Group.
Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW) and National Australia Bank Ltd (ASX: NAB) will make great dividend stocks, at the right price. I have no doubt.
However, determining what is – and what isn't – the 'right' price to pay for a particular company is not easy – especially for people new to the share market.
So here are my thoughts on each of these renowned dividend-paying stocks.
- Telstra – my buy price: $5.00
Telstra is Australia's dominant telecommunications company, largely thanks to its ownership of the largest communications infrastructure. While the company's relinquishment of its copper cable assets to the NBN Co appears to be well timed, with more devices now utilising mobile wireless networks, Telstra will be moving to a level playing field in the local market. However, so long as the company's new CEO, Andrew Penn, allocates capital efficiently to both local and Asian projects, Telstra's long-term growth outlook remains intact. My fair value target for Telstra is between $6.40 and $6.50.
- NAB – my buy price: $20
Historically, National Australia Bank has proven to be the most accident-prone major Australian bank. However, it does have a number of promising characteristics which cannot be overlooked. Significant business banking market share, growing exposure to household lending and the wealth management arm are just some of the great features of the $78 billion bank. While I'll refrain from digressing as to why the common P/E ratio is not an adequate measure of a bank stock's value in this article; NAB shares do not appear cheap at today's prices against a backdrop of a slowing economy. Therefore, my advice is to keep NAB shares on your watchlist for the foreseeable future.
- Woolworths – my buy price: Low $20s
Woolies shares have suffered a gut-wrenching fall in price over the past year (down 31%), with no end in sight. And following the recent appointment of a new chairman, and the forthcoming departure of CEO Grant O'Brien, the group's recent annual report did little to reassure shareholders, and investors. Indeed, my fair value estimate for Woolworths shares is around $28, but that figure is entirely dependent upon the group devising a logical growth strategy in response to the growing competition in supermarkets. It also requires them to have some original thought on strategy within its Masters Home Improvement business. Therefore, until the management shakeup clears up, I'd advise investors hold off buying in. Current shareholders can expect the final fully franked dividend to hit bank accounts around October 9, 2015.
