With the Cash Rate at a new all-time low of 2.25%, mortgage lenders slashing longer-term fixed rates (5 Year Fixed Rates have been slashed by up to 1% in 2015 alone) and the 10-year Australian Government Bond rate at just 2.55% (!!), much of the talk surrounding the ASX in recent days has been focused on dividends. We have a portfolio heavy on dividend-paying stocks, and it would be great to catch some of this momentum in the coming months.
If I had to back a single stock today, I'd be looking at Woolworths (ASX: WOW). After a stumble allowed me to buy in around $30 for the Rule 76 portfolio, a rally since has the stock back up over $32. However based on historical dividend levels, $32 will look cheap to many looking for a reliable dividend from one of Australia's most successful companies. I can see the Woolies share price pushing towards all-time highs in 2015 in the current interest rate environment.
Are the banks too expensive?
I made my first investment into the stock market (excluding my managed Super fund) in September, 2012, buying into KFC and Sizzler franchisor Collins Foods (ASX: CKF). Long before I made that purchase, conventional valuation methods and measures had rated the Big 4 Australian banks as too expensive, a . Since then, however, the CBA has returned over 70%, plus dividends. If you have sat on the sidelines and avoided the banks over the last few years (as I have), you've missed out on some serious returns.
CBA today announced a $1.98 interim dividend, good for an annual dividend yield of about 4.5%. With savings account and term deposit rates destined to hover well below this for the foreseeable future, there should be no shortage of demand for the juicy CBA dividend from investors.
Still, I am sticking to the script I have maintained through the rise and rise of the banks, and agree with Bruce Jackson of The Motley Fool who says, "At those levels, there simply can’t be too much fuel left in the CBA share price tank. It’s a massive company, trading on a premium valuation, and only growing fairly modestly. Sit back, enjoy the CBA dividends, and forget about any meaningful share price appreciation from here."
I have a large holding of the Australian Foundation Investment Company (ASX: AFI) in my personal portfolio, which gives me some exposure to the banks. That's all I want for the time being.
