Market Wrap Up April 2012

Posted in Wealth
21/05/2012 Level One

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

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

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

6 months5.40%3.65%2.50%5.50%
1 year5.40%5.00%5.00%5.00%
3 years5.20%5.30%5.30%5.30%
5 years5.60%5.80%5.60%5.70%

Non-Bank Term Deposit Rates

6 months5.50%5.50%5.45%5.75%
1 year5.10%5.40%5.20%5.55%
3 years5.40%N/A5.55%4.20%
5 years5.70%N/A6.00%4.40%



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