Aussie "Dividend Aristocrats" and How to Find Them

I've lost count of the amount of times that successful investors have stated that avoiding losers has been far more important than picking winners.

There are countless ways to approach this both fundamentally and technically. The work required can potentially be significant.

A short cut is to subscribe to one of the better investor subscription / stock screening services such as the following. I've always liked their "Your Money Weekly Newsletter" and it's gotten progressively better since they took it over from Huntley. There's a free trial available by the look of it.

Morningstar - Compare membership (Premium Membership)

This could save you a lot of work on the analysis side of things. Why waste your time doing what is already available relatively cheaply. They focus a lot on quality including moat and the like thus minimising the risk of you selecting rubbish. The following gives you some idea of the process:

Our Research Methodology - Morningstar.com.au

Take note of their income portfolio commentary but you can focus on growth and small cap recommendations or whatever takes your fancy.

This is probably a less risky way to go about finding out if the "direct" share route is for you. You can just follow their recommendations / model income portfolio or use the service as a quality stock screener. Read enough of their reports then over time your confidence will build where eventually you can apply more of your own independent thinking and tailor a portfolio to meet your specific needs.

Just some thoughts and what I wish I had done when I first started investing in direct stocks.

 

Always appreciate honest feedback.

Guess that's why I'm sticking to LICs, maybe one day I'll make the same mistake as many others.

 

Haha, is this the gospel of Peter Thornhill gradually evolving over time?

In all seriousness, I've done the same - gone from mostly LICs and ETFs, added in holding some direct shares, then swapped back to LICs. I'm gradually getting to know myself better and working around my own tendencies. For example, it's more exciting adding direct stocks. However it's very relieving selling them off and going back to just LICs. Not very exciting if you want to check every day, but that's the point.

I now just tell myself - "only LICs and ETFs, so can comfortably hold them forever and don't need to second guess the single stock story."

And that being said, there are enough interesting opportunities that arise in LICs IMO. When they're trading below NTA, it can be a very low risk way of gaining a small free lunch. I remember Geoff Wilson saying "it's almost too good to be true, that you can buy these things for less than they're worth."

He finished that with "and sell them for more than they're worth" but that's not what most here are doing, myself included. But, if you really wanted to, you can do some trading of them in a low risk way. Take a portion aside and buy one you like anyway, that traditionally sells at a premium, when its at a discount, and sell that portion again once its premium returns.

 

Oh and back to the topic at hand of "dividend aristocrats" and tying in nicely with the above LIC discussion - I've been recently looking at SOL. It's also kind of an LIC, or close enough for it to pass my filters and to include a small portion of it. Perhaps if it falls further, to reflect the fall in TPM, i might add some.

Paid a dividend every year, including great depression and world wars. And one of only two companies to increase its dividend every year over the last 16 years. Most attractive to me, is that that dividend has grown on average 10% per annum. So the starting yield might not be as high as BKI, MLT, etc, but one would think it would grow more. And at the moment the starting yield is looking more attractive, hence my interest....

 

I'm late to the party on this thread I know but I like this post @oracle as I have been thinking about the same thing. I'm not looking to get rich quick but would like to achieve my passive income goal in the next 10-15yrs. Being on a relatively average wage I've thought more about using conservative leverage(against ppor) during this time frame to speed up the process. This would be opposed to leveraging massively into multiple ip's to speed up capital growth.

I know this has been mentioned by others to use during crashes, the phrase "pin the ears back" has been used a few times.

I can of course see the benefits during the downturns in the market but instead of accumulating properties for say 10yrs, then selling down and using the funds to then by equities couldn't one consistently use smaller amounts of conservative leverage and achieve a similar or better result?

 

@steveo it is a conundrum many of us face after having already purchased multiple IPs. I was one of those who swore I would never sell my IPS and would buy and hold forever. I now seethe every time I pay a rates bill, water, maintenance, repairs, insurance and agent’s fees. Oh, the number of times I have made sure my tenants are looked after well with a new dishwasher, cooktop and whatnot while we make do with whatever we can get away with at our own PPOR.

Also, one has to remember that selling down properties is not as simple as selling a parcel of shares. You need to spruce the property up, pay selling agent costs, legal fees etc. This is before you even get to CGT.

If I had my time over again, I would just buy a modest PPOR (as we did), create splits, pay down loan and borrow conservatively against it to invest in shares (when a bargain presents). As @The Falcon once said, one house to live in is more than enough. For investment, no better choice than businesses (he said it with a lot more panache than my clumsy paraphrasing) .

For the future, what is the best course of action? Sell all my IPs now and take the hit? They have not had any real growth (so no CGT) but the cost of transactions will be HUGE. All the stamp duty and buying costs down the drain. Do we hold on to it for 10 years like you say and hopefully the capital growth will be so stellar that the pain of maintaining those cash guzzling properties seem like a minor blip in the rear view mirror?

What I would give to access a shiny working crystal ball at this very moment.

 

He he, how many times I've seen that. Wait till they're retired and trying to manage cashflow when lumpy IP expenses hit. Things that didn't seem such a burden when young (eg tenant issues, IP trashed, major IP repairs / maintenance, land tax, expenses in general, storm damage) are generally much more stressful when older and no longer working.

I've lost count of the number of times I've seen the "I'll never sell so won't have to pay CGT" types end up doing just that later in life.

Yes, we often felt we were working just to keep the tenants happy whilst making sacrifices ourselves.

No use dwelling on the past, just a wast of energy. It's a rare investor that has got it right (for them) from the start. You're still young, be thankful you're finding this out now about yourself, many never do until it's too late.

Without a doubt @The Falcon was the best poster here. I'd love to know what happened to this sage investor?

As discussed, patience grasshopper. They're still assets, just not the ones you'd prefer to own. There's no guarantee Shares will grow in ten years either. Don't let frustration get you down and have you selling an asset at the worst possible time. Nothing like a pile of debt and IP expenses to keep you focused on saving. In hindsight we saw IPs as forced savings where alternatively we could have blown more of our money on lifestyle.

The capital gains will come, debt will reduce. Sell them for the right reasons - to make a profit when the time's right. Manage the CGT as best you can then progressively move the proceeds into your preferred investment assets.

Above all keep smiling, at least you're investing for your future.

 

I think he is making appearances under a different name. Just as we suspect that Peter Thornhill is posting as @austing

Great words of wisdom there

 

Well I'll be buggered. What a cheeky rascal.

 

Hi Brain trusts,

I have been thinking about debt recycling as previously mentioned by a few on this forum. Currently we have a considerable mortgage on the family home as we only purchased 2yrs ago. I see it as an opportunity to buy into the LIC's I would like now, rather than paying off the mortgage then start to invest later which could be 10-15yrs from now.

Not looking for advice but has anyone actually used this method and can share their experiences?

Similarly does anyone want to share their thoughts, opinions on the above?

Couple of points from me:
*Getting rid of non deductible debt is good
*Buying into LIC now gives me opportunities in future for discounts, spp etc...
*I would think the returns from the LIC would need to be greater than the interest on the loan (not sure if this is achievable now & in future?)
*Leverage is a double edged sword as they say
*Not the best option if the ppor will become a rental in the future (say when kids move out)

Again not looking for specific advice but I appreciate the varied views and experience on this forum and it helps me to come up with my own plan, also I hope maybe others will benefit from the discussion as I will.

 

Yes some of my clients use it - with shares in general.

I advised on the tax and loan side, but not the share side, but they seem to be going well.

see
Tax Tip 13: Simple Loan Structuring Strategy https://propertychat.com.au/community/threads/tax-tip-13-simple-loan-structuring-strategy.2601/

Many are set up like that.

 

Thanks Terry, I have since read that this strategy is best suited for those who have high income. Do you see this to be the case?

Have your clients who successfully implement this plan all been on high incomes?

 

I have one doing it on about $40k income. Works just the same but might be at a slower pace.

 

Do you DRIP or not?

Beware the hidden costs of DRPs

Dividend reinvestment plans are popular, but investors must remain vigilant.

 

A true dividend aristocrat. Ramsay Health Care continues to perform strongly. Increased dividends by 12%.

Pay close attention to RHC's EPS and see what their payout ratio is. Under 50% is being passed on to the shareholder. Leaving a good chunk for the business to reinvest and continue to grow dividends into the future.

Always do your own due diligence. NOT advice.

 

If $10k was invested in RHC 5 years ago ... 63.10% annualised return.

 

Not true Dividend Aristocrats but this is the list I have so far:
Washington H. Soul Pattinson (ASX:SOL) P/E: 26.430 - EPS: 0.624 AUD - Annual dividend yield: 3.15
A.P. Eagers Ltd (ASX:APE) P/E: 18.720 - EPS: 0.493 AUD - Annual dividend yield: 3.79
ARB Corporation (ASX:ARB) P/E: 26.080 - EPS: 0.599 AUD - Annual dividend yield: 2.11
Ramsay Health Care (ASX:RHC) P/E: 32.970 - EPS: 2.176 AUD - Annual dividend yield: 1.66
InvoCare (ASX:IVC) P/E: 22.290 - EPS: 0.586 AUD - Annual dividend yield: 3.01

Some of these are not near 52 week highs:
SOL is currently trading at 7.90% below 52 week high
APE is currently trading at 25.84% below 52 week high
ARB is currently trading at 14.97% below 52 week high
RHC is currently trading at 13.95% below 52 week high
IVC is currently trading at 3.21% below 52 week high

Out of interest I ran Computershare Limited just to see how the stats compare to our Dividend Aristocrats.

Computershare Limited (ASX:CPU) P/E: 24.960 - EPS: 0.556 AUD - Annual dividend yield: 2.45

Just looking at P/E, EPS and Annual dividend yield, it's not so different from the "Aristocrats".

Currently trading at a 52 week high though but will be ex Div on the 25th?

 

The SPDR S&P Global Dividend ETF WDIV.ASX holds 4 Australian stocks

Woolworths
APA
Challenger
Sonic Healthcare

See also Don’t get tripped up chasing dividends

The UBS study concluded “high-yield strategies have not outperformed in Australia over the past 20 years” because “high-yielding stocks have typically passed the mature phase of the company lifecycle and are in decline.” Therefore, investors should focus on total returns driven by capital appreciation and dividend growth.



This little fella also said

unfortunately Australian investors have only two stocks that have increased dividends for greater than 20 years – Washington H Soul Pattinson (SOL) and AP Eagers (APE). Improtantly, both managed to grow dividends throughout the GFC, which was a rarity for Australian companies.

A number of other stocks have grown dividends strongly over time, but either didn’t qualify due to a listed period which was less than 20 years, or by holding dividends constant during the GFC. These companies include stocks like Ramsay Healthcare (RHC), Invocare (IVC), ARB Holdings (ARB) and CSL. Blackmores (BKL), although listed only since 97, is another company I have my eye on – as is Reece Limited (REH).

 

Looks like only APA now

 

If something is out there, I'm keen to find an ETF ( or LIC ) that consistently delivers dividend yield in the 6%+ range. Easier to spread risk and perhaps less brokerage than holding individual dividend stocks. This is for my direct portfolio and not my longer-term and larger super portfolio. Part of the rationale is to be able to maximise dividend income for serviceability.