At the present time most Aussie investors are concerned about the future of their portfolios. That's understandable, since the outlook for the ASX and for the wider economy is uncertain and, realistically, there is a danger there could be a recession in the coming months.
However, this does not mean that all investments should be avoided. A key reason for that is the poor returns which are currently available on cash and which are set to get worse if the RBA continues to reduce interest rates to stimulate the wider economy. And, with the likes of National Australia Bank Ltd. (ASX: NAB) and Scentre Group Ltd (ASX: SCG) yielding 6.2% and 5.2% respectively, they offer the chance to boost incomes at a time when it is most needed.
Furthermore, both companies appear to be relatively stable businesses which are set to deliver long term capital gains. In the case of NAB, it has raised over $5bn this year via a rights issue in order to strengthen its financial standing. As a result, it now has a tier 1 capital ratio of 9.94% which represents an increase of 107 basis points from earlier in the year. Looking ahead, it is aiming to maintain its tier 1 capital ratio at between 8.75% and 9.25% from 2016 onwards which should provide the market with confidence in the bank's ability to withstand a downturn for the Aussie economy.
In addition, NAB stands to benefit from a lower interest rate, with the company being focused on its priority customer segments of home lending, SME and specialised business. With demand for loans likely to be boosted by a lower cost of borrowing, this could be a key growth area for NAB and a major contributor to its forecast earnings growth rate of 11.5% per annum during the next two years. And, with further progress being made on the sale of non-core assets such as its UK operations and the sale of its stake in Great Western, it appears to be a leaner and, crucially, more stable business.
Meanwhile, the owner of the Westfield branded shopping centres in Australia and New Zealand, Scentre Group, offers relative stability as evidenced by it enjoying a 99% occupancy rate over the last 20 years. Furthermore, it continues to post growth in specialty sales productivity as well as further growth in average rents. This is set to contribute to a rise in earnings per share to $0.23 next year, which puts Scentre Group on a forward price to earnings (P/E) ratio of 17.5.
Although higher than the ASX's P/E ratio of 15.5, Scentre's relative stability and consistency shown over a long period of time appears to justify a premium rating. Meanwhile, its price to book value (P/B) ratio of 1.31 is roughly in-line with the ASX's P/B ratio of 1.26.
In addition, Scentre Group benefits from sound financial standing, with its gearing of 35% being within its target range of 30% – 35%. And, with multiple projects in the pipeline including a $110m redevelopment at Chatswood, Scentre Group appears to be confident about its future prospects. As such, it appears to be worth buying for the long term alongside NAB.
