Should you buy these 4 Stocks having High Dividend yields?

Commonwealth Bank of Australia (ASX: CBA)

CBA Details

Trading at low levels but facing headwinds: CBA stock has fallen over 10.7% in last one month (as at September 01, 2017) at the back of the recent headwinds. CBA has recently announced that it acknowledges and supports the Australian Prudential Regulation Authority’s (APRA) announcement of an independent prudential inquiry into the bank. This inquiry is said to focus on the bank’s governance, culture and accountability frameworks and practices followed. An independent panel to be appointed by APRA will be conducting the inquiry. Meanwhile, the bank has announced about changes to its board of directors with the appointment of Mr Robert Whitfield and retirement of Ms Launa Inman and Mr Harrison Young.

CBA’s trading position and price-earnings premium relative to other banks are currently at low levels (price-earnings premium at the lowest in the past seven years). However, the bank’s strategy and execution, and return profile have been under stress for quite some time. Risks emanating from liabilities and penalties, including impact from AUSTRAC’s court action relating to money laundering and anti-terrorism financing rules that have not been complied by the bank; and overall challenging banking sector environment do prevail. In the recent times, banks have been directed to raise their equity and lower the speculative lending, and this has affected the big players like CBA to a significant extent. Given the scenario, we believe that the bank is “Expensive” at the current price of $ 74.41


CBA Daily Chart (Source: Thomson Reuters)

National Australia Bank Ltd (ASX: NAB)

NAB Details

Higher cash earnings and revenue: In August 2017, National Australia Bank provided its 2017 third quarter trading update wherein the revenue moved up 2% driven by growth in lending and improved net interest margin (NIM), while there was an impact from lower Markets and Treasury income. The bank had reported its unaudited statutory net profit of the order of $1.6 billion while unaudited cash earnings of $1.7 billion have been up 2% compared to March 2017 Half Year quarterly average and 5% over prior corresponding period (pcp). Better asset quality trends and non-repeat of the collective provision overlay for commercial real estate raised in the March 2017 Half Year led the bad and doubtful debt charges falling 12%.
 

Asset Quality (Source: Company reports)

NAB had made a note of having increased capital requirements for the Australian banking sector as announced by APRA. Specifically, it has been advised that Authorised Deposit-taking Institutions (ADIs) using Advanced Internal Ratings based models are needed to target a Common Equity Tier 1 (CET1) ratio of at least 10.5% by January 2020 (NAB’s CET1 ratio as at 31 March 2017 was 10.1% on an APRA basis). However, the group’s CET1 ratio of 9.7% as reported in the latest result was below the March 2017 figure owing to the impact of the interim 2017 dividend declaration and 17 bps for higher risk weights due to previously advised mortgage model changes. Although the overall scenario with banks now seeking to distribute lower dividends looks challenging; NAB’s efforts, performance, and potential to declare dividends on a sustainable basis still look appealing. The stock has moved up slightly by 1.37% in the last three months (as at September 01, 2017). We maintain a “Buy” at the current price of $ 30.26


NAB Daily Chart (Source: Thomson Reuters) 

Myer Holdings Ltd (ASX: MYR)

MYR Details

Downgraded full-year profit guidance: The full line department store group is set to announce its 2017 full year results on September 14, 2017. In the month of May 2017, MYR had announced that EBITDA growth will be more than the sales growth in FY2017 and NPAT will be higher than $69.3 million (pre-implementation costs) based on the assumption that the conditions that existed around the January Stocktake period will not return. However, the group downgraded its guidance and anticipates FY2017 NPAT (pre-implementation costs and significant items) to be between $66 million and $70 million while implementation costs (pre-tax) are expected to be between $18 million and $20 million. This has been at the back of weak retailing environment wherein risks from Amazon’s arrival also exist. MYR also indicated that write-off of the Austradia investment and the impairment of sass & bide that are non-cash, will be accounted under individually significant items in the FY2017 results. Given the softness in trading conditions with MYR moving below its historical and industry average, and the present challenging environment, we give a “Hold” at the current price of $ 0.74


MYR Daily Chart (Source: Thomson Reuters)

Suncorp Group Ltd (ASX: SUN)

SUN Details

Rise in top line and continuous efforts for customer growth through refreshed strategy:Suncorp’s FY17 annual results entailed 3.6% rise in reported NPAT of $1,075 million against FY16 figure of $1,038 million. The group’s top line also surged 3.6%. SUN’s Insurance business delivered NPAT growth of 30% to $723 million, at the back of strong top-line growth and lower claims costs. The General Insurance business also witnessed strong progress in remediating claims cost issues in the Home and Motor portfolios. However, the Banking & Wealth business delivered NPAT of $400 million and was impacted by investment in the Core Banking and Wealth platforms. Life Insurance segment was still under slight pressure.


Customer Growth (Source: Company Reports)
 
Given the result, SUN’s final dividend of 40 cents per share (cps) fully franked led to the total dividend figure of 73 cps against the FY16 figure of 68 cents (a rise of 7.4%). This represented a payout ratio of 81.9% of cash earnings. SUN is also continuously striving to achieve better customer growth at the back of its ‘Refreshed’ strategy and ‘One Suncorp’ model in place.

In the latest move by the group’s subsidiary, Vero Insurance New Zealand Limited, an appeal with the High Court of New Zealand has been lodged with respect to the New Zealand Commerce Commission’s decision to decline its application to acquire Tower Limited.In the last one month, the stock has declined over 10% (as at September 01, 2017) owing to volatility.
While challenging market conditions prevail for few segments, group’s overall performance and supportive economic fundamentals are expected to provide moderate growth. We give a “Hold” at the current price of $ 12.90
 

SUN Daily Chart (Source: Thomson Reuters)

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