With the news that franking credits may not be available to retirees with election of Labor next year as the party aims to have a crackdown on dividend imputation credits, many high dividend-paying stocks including the big four banks came under some hammering. Amidst the scenario, below two stocks can be watched given the improving fundamentals.
 

Bank of Queensland Limited

Convertible Preference Shares suspended from quotation: Bank of Queensland Limited (ASX: BOQ) was under spotlight recently as the bank’s Convertible Preference Shares were suspended from quotation at the request of the bank, pending their early conversion or redemption. However, BOQ’s shares will not be affected by this suspension. Moreover, the bank through the Capital Notes offer had raised $350 million by the issue of 3.5 million Capital Notes for $100 each. After a strong investor demand, the size of the offer was increased from $325 million to $350 million. Additionally, BOQ has seen a 30% uplift in mortgage application volumes, which gives the company confidence of a return to growth in the later period of 2018. The group’s Common Equity Tier 1 capital ratio was 9% as at November 30, 2017, down from 9.4% as at August 31, 2017. The bank has set its CET1 Capital ratio range to be between 8% to 9.5%. Meanwhile, BOQ stock has fallen 6.42% in three months as on March 12, 2018. We give a “Hold” recommendation on the stock at the current price of $11.93, ahead of its half year result release planned for April 2018.
 

MyState Limited

Expects 2H18 to be much stronger than 1H18: MyState Limited (ASX: MYS) reported a 4% rise in 1H18 net profit after tax of $15.8 million driven by NII and Wealth. During the period, MYS has delivered strong underlying revenue growth with 6.8% rise in Net Interest Income and banking and wealth non-interest income up 3.8%. MYS has maintained its margin. However, the revenue’s growth was constrained by the regulatory requirements imposed on interest-only and residential investor lending. In 1H 2018, there is a continuous improvement in the credit quality with 30-day arrears well below peers. FUM at 31 December 2017 was at highest level in nearly a decade, as it increased 10.7% to $1.2 billion. Moreover, MYS has increased the fully franked interim dividend to 14.25 cps, up 0.25 cps. The dividend is payable on March 29, 2018 to shareholders at the record date of March 05, 2018, with a 1.5% discount for shares issued under the Dividend Reinvestment Plan. Additionally, MYS expects 2H18 to be much stronger than 1H18. Meanwhile, MYS stock has fallen 4.8% in three months as on March 12, 2018 and we give a “Hold” recommendation on the stock at the current price of $4.71, given the growing loan book and growth across key financial metrics.

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Half year Performance (Source: Company Reports)