Since January 1, 2012 the All Ordinaries index has increased by 5.22% from 4155 points to 4384 points as at April 4, 2012.
During the 2011 calendar year the All Ordinaries index hit a low on September 26, 2011 of 3927 points.
Accordingly since September 26, 2011 the market has rebounded a total of 10.42%. That is a pretty significant move in 6 months.
To put this into perspective we must remember that the market or All Ordinaries index peaked in November 2007 at 6800 points, thus we are still 35% below those lofty heights. So if the recent rally in the market doesn’t cheer you up I can understand why!
Nevertheless it is good news for now.
Interest Versus Dividends
We recently had a client ask us about the difference between interest rates on term deposits and dividend income from shares.
In light of the cash rate reducing over the last 6 months and economists making every suggestion that investors should be looking to the sharemarket for cheap buys, I thought it was high time to illustrate these differences.
Below is a snapshot of some high yielding Blue Chip Australian stocks.
Australian Bank Stocks
| CBA | Westpac | ANZ | NAB | |
|---|---|---|---|---|
| Revenue $m | $19,659 | $17,123 | $16,812 | $17,637 |
| Profit after tax $m | $6,793 | $6,301 | $5,640 | $5,423 |
| Dividend per share | $3.25 | $1.56 | $1.40 | $1.72 |
| Grossed-Up Dividend per share | $4.62 | $2.22 | $1.99 | $2.44 |
| Share Price (as at Apr 4, 2012) | $49.90 | $22.12 | $23.01 | $24.79 |
| Yield % | 9.30% | 10.71% | 8.69% | 9.91% |
Non-Bank Stocks
| Tabcorp | Telstra | Woodside | Woolworths | |
|---|---|---|---|---|
| Revenue $m | $4,469 | $24,982 | $4,802 | $54,280 |
| Profit after tax $m | $893 | $3,229 | $1,507 | $2,124 |
| Dividend per share | $0.32 | $0.28 | $1.03 | $1.24 |
| Grossed-up Dividend per Share | $0.45 | $0.40 | $1.46 | $1.76 |
| Share Price (as at Apr 4, 2012) | $2.84 | $3.36 | $35.00 | $25.79 |
| Yield % | 16.10%* | 11.90% | 4.21% | 6.87% |
You can see from the above that the big four banks are yielding 9-11% per annum compared to term deposit rates of 5-6% per annum.
Dividends vary greatly between companies, as illustrated above, with Woodside Petroleum yielding a low 4.21% while Telstra is currently yielding 11.90%.
* Whilst Tabcorp has projected a forecast yield of 16.10%, I believe this to be overly optimistic and would speculate that a more accurate yield to be around 9%.
By way of comparison I have outlined below term deposit interest rates on offer from various bank and non-bank institutions:
Bank Term Deposit Rates
| CBA | Westpac | ANZ | NAB | |
|---|---|---|---|---|
| 6 months | 5.40% | 3.65% | 2.50% | 5.50% |
| 1 year | 5.40% | 5.00% | 5.00% | 5.00% |
| 3 years | 5.20% | 5.30% | 5.30% | 5.30% |
| 5 years | 5.60% | 5.80% | 5.60% | 5.70% |
Non-Bank Term Deposit Rates
| IMB | ING | Bendigo | Suncorp | |
|---|---|---|---|---|
| 6 months | 5.50% | 5.50% | 5.45% | 5.75% |
| 1 year | 5.10% | 5.40% | 5.20% | 5.55% |
| 3 years | 5.40% | N/A | 5.55% | 4.20% |
| 5 years | 5.70% | N/A | 6.00% | 4.40% |