Morning Report Wednesday 14 January 2015
With Australian 10-year bonds trading at all-time low rates, around 2.6%, quality stocks with sustainable yield are being chased hard – see chart 1. Australia currently has $1210 billion in savings accounts, how much of this will consider alternatives if rates fall further? Interestingly, only a third of Australians have a home loan with the total around $925 billion hence rate cuts arguably hurt more people than they help!
• Telstra will pay a 15c fully franked dividend in February, hence investors who purchase stock today will receive 7.37% fully franked yield over the next 13 months.
Historically, Telstra’s share price rises ahead of dividends, which is easy to understand from the above, followed by a correction that usually is greater than the dividend. However, as interest rates remain low, the perception remains that Telstra may increase its dividend again and further company buybacks are possible, hence I believe pullbacks will currently be limited. I believe it’s also important to consider the safety side of chasing Telstra (TLS) yield at these elevated levels and on balance it’s not a scary proposition.
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