The interest rates have been held steady at 1.5 percent by RBA; and this was expected by both, economists as well as investors. The annual inflation has been below RBA's target range of 2-3 percent in the past four years and the bank expects that it would remain so even in 2019. The low level of interest rates is expected to support if not improve the Australian economy. The unchanged interest rate is expected to reduce unemployment and have inflation return to target level; the progress is likely to be gradual. However, Philip Lowe, governor of the bank, has repeatedly indicated that the next move in interest rates is more likely to be up than down while concurrently preaching patience as the bank awaits lowering of unemployment and growth in wages. Amid this, the below three stocks look interesting from dividend standpoint:

WESTPAC BANKING CORPORATION

Westpac Banking Corporation (ASX: WBC):Based in Sydney, Australia, Westpac Banking Corporation provides services for savings and general banking. The bank is ~200 years old and is one of the major banks in Australia. It offers financial services such as consumer, business and institutional banking and wealth administration.

Financial highlights (1H18, Mar 2018): Westpac offers cash-earnings measure to assess its financial performance; the measure requires net profit adjusted for:

• Material items that are not ongoing operations
• Items not considered during recommendation of dividends (amortization of intangibles, impact of treasury shares and economic hedging impacts)
• Accounting reclassifications between individual line items that do not impact reported results

Performance based on Cash Earnings (Source: Company Reports)

The cash earnings per share increased by 4 percent to 125 cents with respect to 1H17. For the same period, return on equity improved by 37bps to 14 percent. The Expense to Income ratio increased by 9bps to 41.7 while Net Interest Margin increased by 10bps to 2.17 percent.The interim fully franked dividend of 94 cents per share in 1H2018 remains unchanged compared to dividend paid in 1H17. The Common equity Tier 1 capital ratio stood at 10.5% which is in line with APRA’s strong benchmark.

Meanwhile, its net interest margin for the third quarter ending June 2018, has reduced to 2.06% compared to 2.17% in 1H18, due to higher cost of getting funds and lower contribution from Group’s Treasury.

Outlook: We hold a positive outlook for Westpac and find it well positioned since:

• Global growth seems to trend high even though some uncertainties (slowdown in housing) do prevail
• Australia and New Zealand continue to have an overall low risk growth even though slowdown in housing is expected to exist

While the bank has been indicated to be fined $35 million under the investigations by ASIC relating to untrustworthy loans issued between December 2011 and March 2015, we have a “Buy” on the stock at the current price of $ 27.94 as WBC looks to have the potential to manage such challenges with resilient fundamentals and dividend yield of 6.64%.
 

DICKER DATA LTD

Dicker Data Ltd (ASX: DDR): Operating since 1978, Dicker Data Limited is an established and major computer hardware distributor and is located in Sydney, Australia. Its portfolio comprises of leading technology vendors such as HP, Cisco, Toshiba, ASUS, Lenovo, Microsoft and other tier one global brands.

Financial highlights (1H18, June 2018, with respect to 1H17): The revenue increased by ~14 percent to AUD 718mn compared to revenue in 1H17. The EBT margin stood slightly lower at 2.9 percent in 1H18 compared to 3 percent in 1H17. The PAT margin stood at 2.2 percent in 1H2018 compared to 2.1 percent in 1H17.   

Financial Performance (Source: Company Reports)

Outlook: Our outlook for Dicker Data stands positive as it has been seeing increasing demand across its four key pillars Hybrid IT, IOT, Digital Transformation and Wireless Technology. Furthermore, it has also seen strong growth for both on-premise and consumption-based offerings in H118.

We maintain a “Hold” at the current price of $3.150 while the group has a dividend yield of 5.68%.
 

ADAIRS LTD

Adairs Ltd (ADH): Adairs is an established specialty retailer of home furnishings in Australia with a national footprint of stores across several store formats. Its product range includes categories such as bedlinen, bedding, towels, homewares, soft furnishings, children's furnishings as well as occasional and bedroom furniture. Adairs has over 160 stores across Australia in five physical store formats, comprising Adairs, Adairs Homemaker, Adairs Kids, UHR and Adairs Outlets.

Financial highlights (FY18, June 2018, with respect to FY17): The sales grew by ~19 percent in FY18 to ~ AUD 315mn of which, ~AUD 42mn was through online sales; the online sales in FY18 grew by ~75 percent. The gross profit increased by 21 percent to ~AUD 190 mn while the Gross Profit Margin stood at 60.3 percent when compared to 59.2 percent in FY17. EBITDA Margin stood at 16.5 percent in FY18 compared to 13.8 percent in FY17. EBIT Margin also grew and stood at 14.4 percent compared to 13.8 percent in FY17.


FY18 Performance (Source: Company Reports)

Outlook: We keep a positive outlook for Adairs as the sales growth and the improved profit margins tend to reflect potentiality into the business. Therefore, it might be prudent to have a “Hold” on the stock at the current price of $ 2.420 (trading at slightly higher levels) while the dividend yield is 5.47%.

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