MENU

Why these dividend-paying ASX stocks could be poised to outperform

Those worried that our market will struggle to make further gains this year could find relief in the news that UBS has pulled forward the timing of interest rate cuts in Australia following yesterday’s economic growth data.

This could explain why the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has jumped 0.3% this afternoon to a fresh six-month high of 6,266 points despite the weak overnight lead from Wall Street and the disappointing GDP data that showed our economy expanded a miserly 0.2% quarter-on-quarter.

The economic expansion is below the government’s and Reserve Bank of Australia’s (RBA) forecasts and UBS believes interest rate cuts will come as soon as July this year – if not sooner.

Why rate cuts are good for stocks

Rate cuts are usually a boon for equity markets as it not only stimulates the economy by lowering the cost of debt for companies and consumers, but it also boosts stock valuations.

What’s more, UBS thinks the RBA will deliver a 1-2 punch by cutting again in August to bring the official cash rate to a fresh record low of 1%!

“Real GDP slumped to 0.2% q/q, the weakest in over 2 years, far weaker than consensus a week ago (mkt: 0.7%) & even today after weaker partials (0.3%, UBS: 0.2%), and materially worse than the RBA (0.5%/0.6%),” said UBS.

“Indeed, after Q3 also surprisingly dropped to 0.3%, the 2H-18 collapsed to 0.9% annualised (with private demand flat), the worst since the GFC, & a ‘per-capita recession’.”

Rate cuts may come even before July if unemployment starts to tick up, added the broker.

Stocks best placed to benefit

Interest-rate sensitive stocks like utility company Spark Infrastructure Group (ASX: SKI) are set to benefit from this thematic, although toll road company Transurban Group (ASX: TCL) could find itself in a sweeter spot after the Victorian parliament passed the sweetheart deal to extend its toll concession for another 10 years with a generous 4.25% annual increase.

The big banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are also likely to find favour as they may not pass on the full rate cut to borrowers to pad their profit margins.

Investors will also be more incentivised to buy high dividend paying stocks as the lower interest rate environment will make their yields look even more enticing.

Mining stocks like Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) aren’t usually big beneficiaries of rate cuts but that’s changed now that these mining stocks are regarded as dividend cash cows.

Speaking of attractive dividend stocks, the experts at the Motley Fool have released a free report on their top income stock picks for 2019.

Follow the free link below to find out what these stocks are.

JUST RELEASED: Our Top 3 Dividend Bets for 2019

NEW! The Motley Fool’s team of crack analysts has just released a timely report revealing the names and codes of their top 3 dividend share recommendations for 2019. Be among the first investors to get access—FREE, for a strictly limited time. You’ll discover the names of 3 hefty dividend paying companies with what our analysts consider to be solid growth prospects for the year ahead…

The first two currently offer fat, fully franked yields and the third is a surprising REIT offering you the chance to become a landlord with none of the hassle! If you’re looking for hot new ideas, look no further. But you do need to hurry. Snap up your free copy now, before supplies run out!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our top 3 dividend share recommendations right away.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Commonwealth Bank of Australia, Rio Tinto Ltd., and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!