Heading into the earnings season in February, the ASX 200 index was at its highest level since the market crash in March 2020. The economy was looking positive and there the pandemic, like every major market downturn, had its winners and losers. But, it looks like some of the valuations on these stocks went too high too soon. With earnings coming in, the market has been nitpicking on the numbers released by the firms – leading to what looks like a cyclical rotation of stocks. Australia’s economy, however, is looking very promising and is ahead of the recovery curve of most developed countries.
WIth record low interest rates, it is important to invest in equity markets for returns. Dividends have come to the forefront ahead of growth stocks once again, and this narrative is being supported by what we have seen in markets the past week or two. That being said, a well balanced portfolio has a mix of fundamentally strong growth and dividend stocks.
Rural Funds Group is a Canberra based Trust, that owns agricultural real estate across Australia and leases them to counterparties. Their activities and assets include leasing of almond orchards, macadamia orchards, poultry property and infrastructure, vineyards, cattle properties, cotton property, agricultural plant and equipment, cattle and water rights. RFF generates its revenues through lease payments and appreciation of the market value of its assets over time. Hence, it is a real-estate fund manager. The global market for agricultural products has weathered the Covid19 storm. Commodity prices depend on supply and demand, and they have also relatively held their ground during this time. This has ensured that RFF’s portfolio of assets have performed relatively well during the crisis and hence, de-risks RFF. With over 60 well diversified properties in its portfolio, the agricultural fund manager is a good one to hold on to in your portfolio – both for dividends and growth in share price.
The financial services giant is part of the ASX200 index with over 500,000 clients and $202 billion in funds under management. The firm provides financial advice, portfolio management, investment management, and estate administration services in Australia and New Zealand. IFL has been a steady performer in the past and has had a particularly good last couple of years since the Royal Commission debacle. Growth rates have been stellar in the revenues department recently. IOOF has performed well recently and is forecasted to continue doing so. The acquisition of MLC will give its growth prospects a boost going forward. With a high dividend yield of 6.8%, IOOF Holdings is one of the best dividend stocks to buy. The tailwind that will push the stock forward will come from more money entering the financial markets as the economic recovery from Covid-19 will be underway as the vaccine deployment begins.
Fortescue Metals Group is one of the largest iron ore producers in the world and it has performed exceptionally well during a very turbulent 2020. FMG has returned over 100% in the past year, with significant gains in the past 6 months. High iron ore prices and a halt in operations to one of its biggest competitors has resulted in an exceptional share price performance. They are also one of the top dividend stocks listed on the ASX with current annual yields coming in over 9%. FMG is arguably the best pure play iron ore stock on the ASX. They have had a record half year with shipments, earnings, and operating cash flows being at all time highs.
The guidance for FY2021 shipments has been increased to 178-182 metric tonnes. FMG is a top class ASX share to own right now with high iron ore prices and a strong Aussie dollar. The dividends are all but guaranteed and share price growth should be above average.
This company needs no introduction, but the stock does! The premiere retailer has been having a very robust performance in the past 5 years. Given how they are increasing online sales and reducing their dependency on offline retail, their margins are at an all-time high and profitability is rising. The pandemic has increased their revenues, margins and income after tax and their operating dynamics continue to be supported as we are in an era of e-commerce boom. If the economy has to spring back to life, it has to be continuously supported with increased consumer spending. WIth a dividend yield of 3.63% and an above average return forecast on share price performance, JBH is an ASX share to buy!
The Sydney based healthcare company has a global footprint. They have over 480 facilities in 11 countries. Yeah, they are the big daddy of the healthcare industry. Since the Covid19 outbreak, Ramsay Health Care has served on the frontlines by setting up Covid19 response efforts by working with governments. RHC assisted local hospitals by supplying beds and ventilators to better manage the crisis. The reduction in non-essential surgeries has impacted the firm in the short-term, and it looks like investors have hence sold the stock. In the long-term though, healthcare firms do not come as diversified as Ramsay. The price now may be an opportunity to consider RHC as an ASX share to buy.
Income stocks are potentially one of the hardest to pick as there are a lot of factors that need to be considered – from industry tailwinds to financial health of the individual stocks, and a lot of little things in between them. Several ASX listed stocks have also cut dividends in light of the challenges posed by the pandemic.The low interest rate environment brings income stocks to the forefront for most investors. With the earnings season bringing back dividends in most industries, Shares in Value research team have picked their top 3 ASX income stocks to buy and it can be downloaded for free!