Australian Bank Stocks Offer High Dividend Yields

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Australian banks have recovered strongly after the recent financial crisis and are poised to grow further with the economic rebound in Asia.The market capitalization of Australian banks increased by 64% over the past year compared to a 34% increase for the SP/ASX 200 index.

The dividend yield has been returning to normal levels in past few months as the chart shows below. In 2008, the yield rose significantly due to falling share prices and not due to increase in dividend payouts.

After a large decline in the P/E ratio in 2008, the ratio has been steadily expanding since 2009 with rising earnings as shown in the graph below.

Source: Australian Bankers Association

In general, banks in Australia have paid out a higher proportion of their profits in dividends. Last year the total dividend payouts of all Australian banks was A$13.7 billion.

The Australian banks trading in the US as ADRs are listed below with their current yields:

1. Westpac Banking (WBK)
Current Dividend Yield: 4.19%

2. National Australia Bank (OTC: NABZY)
Current Dividend Yield: 5.17%

3. Australia and New Zealand Banking Group Ltd (OTC: ANZBY)
Current Dividend Yield: 4.28%

4.Commonwealth Bank of Australia (OTC: CMWAY)
Current Dividend Yield: No regular dividends paid

Knowledge is Power: Hyperinflation Fears, China’s Oil Demand Edition

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Who are America’s Most Privileged Workers ?

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An article in the Wall Street Journal on Friday lays out one reason why many U.S. states are facing deep budget deficit issues. From the article:

“What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.”

In fact America’s most privileged class are the unionized  workers. Private sector workers on the other hand do not get paid great salaries and benefits like the public sector workers. Over the years as private sectors workers faced rising layoffs, wage and benefit cuts, competition from overseas workers brought into the US, off-shoring of jobs, etc. public sector workers have enjoyed job security with rising compensation.

The chart below shows the difference these two class of workers in America today:

US-Private-Public-Workers-Comparison

Some of the interesting points noted in the article include:

  • From 1998 to 2008 public sector employee compensation grew by 28.6% compared to 19.3% for private workers
  • Last year despite the great recession and budget deficits more than half the states gave pay raises to their workers
  • In 2008, for  every $1 received in pay and benefits by a private sector employee, a government worker earned $1.45
  • The pay gap between private and public workers is the widest in states with the highest deficits which include New Jersey, Nevada and Hawaii
  • In California, 3000 retired teachers and school administrators who retired at the early age of 55, receive $100,000 a year in pension payments
  • States such as California, Nevada and Ohio allow workers to retire in their 50s and then get re-hired for the same job and get paid twice – once in the form of retirement checks and the other as the salary for the job. This scam in Ohio allows some teachers in Ohio to earn as high as $200,000 each year

Considering the facts above, it would not be an exaggeration to call some of these states as “failed states” for the inability to reign in on lavish payouts to employees and reckless spending of tax payer money. In addition one can come to the conclusion that in today’s capitalist USA, unless one can get an executive-level job in the private sector with nice golden parachutes it is wise to take a government job whether it is at the state, local or at the federal level. It is a bit ironic that in a country that believes in the virtues of free market capitalism and the private enterprise, the best paying jobs are actually in the government sector.

U.S. Healthcare Reform is a Big Boon For Healthcare Companies

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On March 23, 2010 President Barack Obama signed the historic healthcare reform bill into law. This marked the end of many months of wrangling between the Republicans and Democrats. The $938 Billion bill brings many significant changes to the US healthcare system in decades.

The $938B bill would be financed by tax increases and reduction in Medicare spending according to the Congressional Budget Office(CBO). CBO also predicts that the federal deficit would be reduced by $143 billion in the first 10 years. The bill would also extend heath insurance to 32 million uninsured Americans.

US-healthcare

From an EPI article :

“Under the new law, the portion of Americans with health insurance coverage will rise to 92% by the year 2016 and remain steady at that level in future years.  As a result, the number of Americans with no health insurance will fall from 50 million today, to about 23 million in 2019, even as the population grows.”

Some of the obvious beneficiaries of this new law are companies related to the healthcare sector such as health insurers, drug companies, hospitals, medical device makers, etc. Though many provisions of the healthcare reform bill does not become effective immediately, these companies stand to benefit from higher business growth over the next few years.

From an investment standpoint, the stocks of US drug makers looks cheap now according to a piece in Moneyweek.

US-Pharma-EPS-Growth-Sp-500-Compare

Source: Bloomberg via Moneyweek

US drug stocks are very cheap for the following reasons:

1. Investors’ worries about sales collapse due to expiration of patents on blockbuster drugs are overdone and are already priced into stock prices.

2. As the EPS of the pharma sector went up over the past few years, the P/E has been dropping steadily as investors withdrew from this sector. The P/E fell from over 90 in 1999 to about 11.5 now. Also the S&P Pharma index is down 10% lower than where it was 12 year ago.

3. Unlike the EPS growth of S&P 50, the drug companies have been growing their profits at a consistent pace over the last 12 years.

4. The new law will not set any government price controls and additional regulations will not be imposed on drugs industry.

5. Prescription drug prices are 30-50% higher in the U.S. compared to other OECD countries (Source: Disparities in health expenditure across OECD countries:
Why does the United States spend so much more than other countries?, OECD )

The complete list of drug stocks trading in the NYSE can be found here

Health insurers will benefit due to the following reasons:

1. Additional 32 million Americans will be required to purchase insurance.

2. New restrictions such as the placing of lifetime limits on coverage or denying adults based on pre-existing conditions will not become effective until 2014.

3. Many insurers are expected to raise premiums in order to maintain profits. Recently Anthem Blue Cross raised premiums by as much 39% in California for some customers.

4. Some insurance companies will go out of business since they would not be able to compete under the new regulatory environment and others  may merge with the big players leading to a bigger consolidation in the industry.

The five largest health insurers in this country are Aetna(AET), Cigna(CI), Humana (HUM), UnitedHealth Group(UNH) and Wellpoint(WLP).

Medical device makers and healthcare facilities also stand to profit from this new legislation since in general more medical procedures are performed in the U.S. than other OECD countries as the table shows below.Many of the diagnostic tests such as MRI are very expensive and are done even when not required as part of the “defensive medicine” strategy followed by healthcare professionals. Threat of lawsuits forces doctors to perform unnecessary tests generating billions of dollars in revenue for hospitals, medical diagnostic companies and others. Hence it is not surprising to see that the US also has the highest number of MRI units and CT scanners in the world after Japan.

NYSE-listed stocks of Medical Equipment makers, healthcare facilities and biotech & Drug makers can be found here and here and here.

The Most Traded Stocks on the OTC Market

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The following ten stocks are the most traded ADRs on the OTCQX market as of market close yesterday:

  1. Roche Holding (OTC: RHHBY)
  2. Axa (OTC:AXAHY)
  3. BG Group plc (OTC:BRGYY)
  4. Wal-Mart De Mexico (OTC: WMMVY)
  5. Imperial Tobacco Group plc (OTC:ITYBY)
  6. Allianz (OTC:AZSEY)
  7. BASF AG (OTC:BASFY)
  8. Marks & Spencer Group (OTC: MAKSY)
  9. Akzo Nobel NV (OTC: AKZOY)
  10. Adidas AG (OTC:ADDYY)

AXA of France recently delisted its common shares from the NYSE and moved to the OTC market. Among the stocks listed, BASF and Akzo Nobel are some of the large chemical firms in the world. All the OTC equities shown above are European except Wal-Mart Mexico’s ADR. This shows U.S. investors’ interest in European stocks though they are traded on the over-the-counter exchanges. It must be noted however that most of these companies are multi-billion dollar companies though they trade on the OTC markets.