Why Australia Is Attractive For Dividend Stock Investors

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The Australian equity market is under-performing this year with the benchmark S & P/ASX 200 down 5.5% year-to-date. Australian stocks have been bit due to the ongoing slowdown in China. As Australia is a major trade partner of China primarily exporting commodities, the slowdown in Chinese economy has adversely impacted Australia.

Though Australian stocks are down this year, income investors with a long-term horizon of 5 years or more can take advantage of the lower prices and accumulate shares at current levels.

Some of the reasons to buy and hold Australian dividend stocks are listed below:

  • Australia has the highest dividend yield among major equity market as shown in the chart below:
  • Click to enlarge
  • Dividend Yields-Australia vs Other COuntries
  • At 5.5%, the yield is more than double that of the S&P 500 is around 2%.
  • Dividend payouts by Australian firms are some of the highest in the world. The following chart shows the historical dividend payout ratio:

Australia Payout Ratio

  • Australian firms did not cut their dividends aggressively even during the global financial crisis.
  • Banks and insurers are steady and consistent dividend payers.
  • In the banking sector, Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp are projected to increase payouts this financial year.
  • Unlike other developed countries, Australia has not implemented Quantitative Easing (QE) programs. This is positive for the currency and the economy as a whole in the long-term.
  • Australian tax system encourages the payment of dividends and does not ding investors with double taxation of dividends.

Five Australian stocks trading on the US markets are listed below with their current dividend yields for further research:

1.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 5.88%
Sector:Banking

2.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 7.31%
Sector:Banking

3.Company: Telstra Corp Ltd (TLSYY)
Current Dividend Yield: 5.56%
Sector:Telecom

4.Company: National Australia Bank Ltd (NABZY)
Current Dividend Yield: 7.39%
Sector:Banking

5.Company:Commonwealth Bank of Australia (CMWAY)
Current Dividend Yield: 7.84%
Sector: Banking

Sources: 

Australian Stocks’ Worst-Ever Start Has Investors Eyeing Payouts, Bloomberg, Jan 12, 2016

Martin Currie Investment

Note: Dividend yields noted above are as of Mar 29, 2016. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long NABZY and WBK

On The Current State Of German Households

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The media and the certain sections of public generally focus on macro economic indicators such as GDP in order to discuss the well-being of a country. But how do all the over-hyped figures such as the GDP, GDP Growth Rate, etc. impact the average person on Main Street is important. For instance, the US economy is the largest in the world at over $16.0 Trillion and the GDP per capita is over $53,000. These figures do not mean much when the number of people surviving on food stamps is growing, wages are stagnant, people are unhappy, debt levels are soaring again, crime rates are increasing, etc. In this post, lets take a look at three charts on the current state of households in Germany. Looking at data at the household level shows the real impact of economic growth or lack there of based on a report by the OECD.

1. German Real GDP and Real Household Disposable Income per Capita:

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German Real GDP and Real Houseehold Disposable Income per Capita
The above chart shows the development of real GDP per capita and real household disposable income per capita since the first quarter of 2007.Both the figures have steadily increased over the years which is good for the economy as a whole.

2. German Household Savings Rate:

German Household Savings Rate

Germans are big savers and not spenders. Unlike the US economy which is a consumption-based  Germany’s economy is export-driven. The household savings rate in Germany was 16.9% in 3Q, 2015 and the average rate is 16.7. The rate is not only high among OECD nations but also highly stable. The latest US personal saving rate is just 5.2% according to St.Louis Fed.

3.German Households’ Indebtedness:

German Households Indebtedness

The chart shows a consistent decline in the indebtedness of German households. One does not need a Ph.D in Economics to understand that lower debt levels are a big positive factor for households.

4. German Unemployment Rate:

German Unemployement RRate

High unemployment rates lead to distressed households. The German unemployment rate stood at 4.6% in 3Q, 2015 the lowest level since 1991. In January, the rate has dipped further to 4.3% according to DeStatis.

Source: A dash of data: Spotlight on German households, OECD Insights

The Stock Market Cycle

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The behavior of stock market tends to follow a cycle.Similar to many conditions of an economy such as expansion, contraction, stagflation, etc. stock markets also go thru periods of booms followed by bust.

The following is an interesting chart by Liz Ann Sonders at Charles Schwab. According to an article by Liz, the stock market tends to have four cycles.

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Stock Market Cycle

 

From the article:

The stock market has familiar cycles dating back to at least the 1960s. The visual below (and the accompanying detailed set of tables below that) highlights these cycles and their direction. Each box in the graphic below shows the median return and duration for the seven of these cycles we’ve seen since 1968; but also the return and duration for the most recent phase of the current cycle. The cycles utilize the bull and bear market definitions pioneered by Ned Davis Research (NDR), which are more nuanced than the simple +20%/-20% traditional definition.

The full article is worth a read.

Source: Echo: Are Stocks Getting Back in Cycle? by Liz Ann Sonders, Charles Schwab

Germany in Numbers

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Germany is the economic powerhouse of Europe and so easily beats Eurozone in GDP growth. But Germany lags behind the US as the chart shows below. Germany consistently runs a trade surplus since it exports more than imports.

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Germany in Numbers

Source: Investing in Germany, FT Special Reports

Related ETF:

  • iShares MSCI Germany ETF (EWG)

US investors can invest directly in about 100 German firms via ADRs. The full list of German ADRs trading on the US markets can be found here.

Disclosure: No positions

OECD: Net Government Debt Offers A Better Picture Of Government Financial Health

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Gross Government Debt as a percentage of GDP gets attention when we evaluate government finances. However according an article by Patrick Love at the OECD, Net Government Debt is also an important factor to analyze in addition to Gross Government Debt. This is a valid argument since assets held by a government is also important as those assets can be sold off to pay off liabilities or can be a significant source of generating income. From the article:

In analysing the sustainability of government finances, the focus tends to be on gross government debt as a percentage of GDP. However, as gross debt does not take into account the asset side of government balance sheets, this measure only tells part of the story. Assets may generate income or be sold in order to redeem part of gross debt, and are therefore very relevant in assessing the financial health of government as well. A government with a high level of liabilities but also with significant amounts of assets on its balance sheet may be better off than a government with a lower level of liabilities and hardly any assets. Therefore, net government debt, which incorporates information on assets, constitutes a useful additional measure to gross government debt. It provides insight into the capabilities of governments to service debt in the longer run and thus presents a more comprehensive and nuanced picture of government financial health.

The chart below shows gross and net financial debt as a percentage of GDP in 2013 for select OECD countries:

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Gross-and-Net-government-Debt-OECD-Countries

Source: Statistical Insights: Government assets matter too, not just debt by by Patrick Love, OECD Insights

Norway, Japan, Finland, Luxembourg, Sweden, Slovenia and Greece have large amount of financial assets. So they rank lower on the basis of net vs. gross government debt. United States, Hungary, Italy, Poland, Belgium and the Slovak Republic have low financial assets on their balance sheet. Hence the difference between their net and gross government debts is not substantial.

The chart also shows the Scandinavian countries are better than other European countries based on net government debt.