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Mid-Cap

Six fully franked dividend stocks to Buy

October 12, 2015 | Team Kalkine
Six fully franked dividend stocks to Buy

Bank of Queensland



Acquisitions synergies and new channels to contribute growth: Bank of Queensland Limited (ASX: BOQ) first half of 2015 cash earnings after tax rose 19% year on year (yoy) to $167 million, driven by Synergies from BOQ specialist. The bank improved the fully franked interim dividend by 13% yoy to 36 cents per share during the first half of 2015, from 32 cents per share in the corresponding period of 2014. Meanwhile, BOQ intends to deliver growth through its channels like BOQ specialist, broker and virgin money mortgages, and is in line to achieve its guidance of 45% of cost to income ratio during the second half of the year. The group’s efforts to offer on-balance sheet mortgages to BOQ specialist customers is generating better results than forecasted, which would further boost BOQ performance.

 
Capital adequacy (Source: company reports)

The bank recently raised over $150 million by issuing Wholesale Capital Notes at a margin of 4.35% over the 6 month Bank Bill Swap Rate. We believe the stock is at a reasonable P/E of 14.8x and has an annual dividend of 5.8%. We reiterate our “BUY” recommendation at the current price levels of $12.72.


BOQ Daily Chart (Source: Thomson Reuters)

National Australia Bank



Growth efforts to offset UK Pressure: National Australia Bank Ltd (ASX: NAB) estimates an additional £500 million impact from its UK operations and accordingly rose the provision to the range of £290 million and £420 million, related to Clydesdale Bank for the 2015 full year results. Therefore, NAB stock fell over 20.8% in last six months. But investors need to note that NAB had already diverted over a £1.7 billion funds under its conduct mitigation package. Moreover, the bank is focusing on its core business, and accordingly, improved its asset quality in Australian and New Zealand business and took initiatives to deal with its legacy issues. The bank is investing on areas like home lending, SME and Specialized Business, to improve customer experience and generate a better business banking loan portfolio and wealth business.


National Australia Bank’s credit risk exposure (Source: company reports)

The bank offers attractive valuation as compared to its banking peers, and is trading at a cheaper P/E of 12.99x while annual dividend yield is 6.3%. We place a “BUY” recommendation to National Australia Bank at the current stock price of $31.4.


NAB Daily Chart (Source: Thomson Reuters)

Australia and New Zealand Banking Group



Targeting Asia via super regional strategy: Australia and New Zealand Banking Group (ASX: ANZ) statutory profit rose by 11% yoy to $5.6 billion in 2015, against $5 billion in prior corresponding period (pcp), driven by customer franchises across Australia, New Zealand and Asia Pacific. Customers for International and Institutional Banking improved 9% yoy, boosted by Asian business. ANZ is heavily focusing on its Asian business growth and launched a “super-regional strategy” program to build a solid presence in Asia as compared to its Australian peers. ANZ has also announced for selling Esanda Dealer Finance portfolio to Macquarie. On the other hand, ANZ shares fell over 22.8% in last six months owing to the CET-1 ratio requirement impact and challenging market conditions in China (which would impact the bank’s Asian business).


Year to date as at June 2015 performance (Source: company reports)

But management clarified that its China assets have a stronger average credit rating than the bank’s Institutional assets in Australia and New Zealand. Moreover, China’s Exposure at default comprised only 3% of the bank’s exposure at default (EAD), while its total Institutional Asia Exposure constituted 12% of the group’s EAD. With the bank trading at a relatively cheaper P/E of 10.5x, and solid annual dividend yield of 6.4%, we maintain our bullish stance on the stock at the current price of $28.35.


ANZ Daily Chart (Source: Thomson Reuters)

Insurance Australia Group


 
Berkshire Hathaway Strategic Alliance and Asian Pacific markets to drive growth: Insurance Australia Group Ltd (ASX: IAG) entered into a strategic relationship with Berkshire Hathaway to boost its business further. IAG earning performance had been under pressure wherein itsInsurance profit decreased to $1.1 billion in fiscal year of 2015 as compared to $1.6 billion in the pcp. Meanwhile, Insurance Australia group is focusing on Asia pacific markets. Accordingly, the group rose its stake in SBI General in India to 49% and also acquired PT Asuransi Parolamas, to get insurance license in Indonesia. IAG shares plunged over 18.8% in this year to date due to poor 2015 results. But the stocks recovered 3.57% in last four weeks, and management also issued a positive outlook for next fiscal year and estimates insurance margin to be in the range of 14% to 16%, including a 2% contribution from the Berkshire Hathaway agreement.
 
New CEO: Peter Harmer has been appointed as the new CEO who may help drive IAG’s digital transformation. Asian growth strategy and managing the cyclical downturn for margins will need attention.
 
The key here is that IAG has a decent annual dividend yield of 5.6%. Given the above, we remain upbeat on the stock and give a “BUY” recommendation at the current levels of $5.09.


IAG Daily Chart (Source: Thomson Reuters)
 

Suncorp Group Ltd



Positive outlook and optimization efforts to drive growth: Suncorp Group Ltd (ASX: SUN) general Insurance NPAT fell to $756 million during FY15, against $1,010 million in FY14, on the back of financial impact related to unexpected natural hazard events. On the other hand, Suncorp’s Bank NPAT surged to $354 million in FY15, against $228 million in pcp while the group’s Life business NPAT improved to $125 million during the fiscal year of 2015 as compared to $92 million in FY14. Suncorp is also focusing on cost optimization efforts with $170 million in annual benefits in the 2018 financial year. SUN’s delivered better customer satisfaction scores, solid customer unit growth in its Australian Personal Insurance products as well as enhanced customer retention.

 
Suncorp’s significant growth opportunities across segments (Source: Company Reports)

SUN is trading at decent valuation with P/E OF 14.32x and has a dividend yield of 5.99%. We maintain our positive stance on the stock and give a BUY rating at the current price of $12.88.
  

SUN Daily Chart (Source: Thomson Reuters)

IOOF Holdings



Solid earnings performance: IOOF Holdings Limited (ASX: IFL) recently reported its rejection on the claim that it breached its continuous disclosure obligations or involved in misleading conducts (Maurice Blackburn’s proposed class action). On the other hand, IFL reported a 19% yoy increase which reached $1.7 billion net fund inflow in FY15. EPS increased 13% yoy to 59.9 cps. Meanwhile, Shadforth integration has generated over $13 million in pre-tax synergies in FY15 and is on track to deliver $20 million by FY16. The group lowered exposure to volatile institutional funds flow by divesting Perennial businesses. The industry dynamics have the backing of ageing demographic and compulsory superannuation regime which will be fruitful for IFL. The stock is trading at a decent P/E of 18.5 against its peers and has a strong dividend yield of 6%. We give a “BUY” at current price of $8.87.


IFL Daily Chart (Source: Thomson Reuters)

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