Should you grab these seven stocks that pay dividend yields above 5%?

 Amaysim Australia Ltd

Click’s acquisition to complement the existing business and improve operating leverage: Amaysim Australia Ltd (ASX: AYS) recently announced about acquiring Click Energy and this is a significant milestone in the transformation of company as it increases connectivity to the Australian household and complement its existing suite of mobile and broadband products. Click is a Melbourne based online energy retailer offering electricity in four states (Victoria, NSW, Queensland and South Australia) and gas in Victoria and NSW. Click utilizes an online focused business model to provide competitive energy products to customers based on its core value proposition of low cost, no lock-in contract and monthly billing by providing self-service platform. Click’s business model is strongly aligned with Amaysim as it helps in significantly enhancing scale, operating leverage and cross-selling by adding an additional 136,000 households to AYS existing customer base of ~600,000. Over the next few years, Amaysim intends to reach ~300,000 homes with multiple products (NBN, mobile and energy) with a possible average household ARPU (average revenue per user) of $200/month. Acquisition is expected to generate annual pre-tax cost synergies of approximately $5 million by the end of FY18F. These cost synergies are primarily expected to be generated from efficiencies around customer service, IT systems and processes. The acquisition is expected to be 20%+ EPS accretive for Amaysim shareholders on an underlying NPATA basis in the FY2018.
 

Combined Group Forecasted Performance (Source: Company Reports)
 
The acquisition materially increases the size of Amaysim with the combined businesses generating a net revenue of $497 million and underlying EBITDA of $55 million for FY17F. Moreover, the acquisition is not expected to impact Amaysim’s aptitude to pay dividends in FY17F with the 2017 full year dividend to be partially franked and expected to represent a full year payout ratio of the 60-80% underlying NPAT.  AYS’ H1 FY17 statutory EBITDA of $17.3 million was up 564% while statutory gross profit of $40.5 million was up 14%. Given the expansion efforts and prospects ahead, we maintain a “Buy” recommendation on the stock at the current price of $ 1.74

Telstra Corporation Ltd

Intense competition due to recent spectrum bid by peer: During H1 FY17, Telstra Corporation Ltd (ASX: TLS) reported for a finance income decline of 0.7% year on year (yoy) to $13.7 billion, while EBITDA was down by 1.6% to $5.2 billion, largely impacted by lower revenue from hardware segment. However, excluding one-off expenses for recent regulatory impacts, total income and EBITDA were up by 2.2% and 2.4% respectively (impacted by $400 million and $38 million, respectively). Net profit after tax declined to $1.8 billion due to planned restructuring costs and increased amortization associated with shorter asset life for business software. However, TLS continues to attract new customers by adding 200,000 net new retail mobile services, and currently, it provides 17.4 million mobile services, including 7.6 million post-paid services. Recently, Telstra has announced for $1.0 billion bond issue under its debt issuance program for general corporate purposes. Further, it has sold its remaining 6.5% stake in Chinese online business Autohome to Ping for A$282 million. Over the past three months (as at April 19, 2017), TLS stock has moved down by 19.6% at the back of rise in competition. The stock has come under immense pressure since TPG Telecom won a slice of mobile network spectrum and emerged as a competition with its shares being offered at a discounted price for institutional capital raising. Given the challenging trading environment, a lower than expected full year FY17 guidance (low-to-mid-single digit EBITDA growth), and capital expenditure projects being planned, we believe that the stock is “Expensive” at the current market price of $ 4.25

Fortescue Metals Group Ltd

Pressure from commodity price movement while iron ore and steel demand remained strong during the March 2017 quarter: Fortescue Metals Group Ltd (ASX: FMG) has reported its March-2017 quarterly shipments of 39.6 million tonnes of iron ore. Cash production costs (C1) increased by 12% yoy to US$13.06 per wet metric tonne (wmt), and 4% quarter on quarter (qoq) due to wet weather impacts on production and shipments. Demand remained strong during quarter and was driven by construction and infrastructure activity in China. Further, customers have continued to bid-up the price of higher grade ores to offset the impacts of coking coal prices, restrictions on steel mill production and to take advantage of high steel margins. Fortescue’s average realised price was in line with the December quarter and represented a 76% price realization based on the quarterly average Platts 62 CFR price of US$86/dmt after adjusting for timing differences associated with provisional pricing. 

March 2017 Quarterly Production Summary (Source: Company Reports)
 
During the same period, FMG repaid a further debt of US$1.0 billion driven by strong cash flows on account of higher iron ore price of US$65 per dry metric tonne with cost of US$13.06/wmt. Importantly, debt reduction has lowered net gearing to 22% while holding cash of US$1.5 billion has been reported. The group has reinstated to be on track to deliver guidance of between 165-170 million tonnes for FY17 at a cost of US$12-13/wmt. However, with the spot iron ore prices being snapped, FMG has come under a lot of pressure. Over the past one month (as at April 19, 2017), the stock has declined by 22% on concerns relating to iron ore prices and oversupply. Considering the scenario for overall iron ore prices and volatile environment, we give an “Expensive” recommendation on the stock at the current market price of $ 5.18

Crown Resorts Ltd

Decline in Australian revenue due to reduction in VIP program play revenue: For H1 FY17, Crown Resorts Ltd (ASX: CWN) reported a net profit of $359.0 million (up 75% from H1 FY16) while posting a decline in normalized revenue. Notably, the Australian operations witnessed difficult trading conditions as the total revenue across the company’s Australian resorts declined by 12.5%. Decline was primarily due to the reduction in VIP program play revenue in Australia, which was down 45.3% during the same period. Main floor gaming revenue also decreased by 0.8%, with modest revenue growth in Melbourne offset by softness in Perth. The company reported net operating cash flow of $230.0 million against 200.9 million in H1 FY16 while the net capital expenditure and dividend payment stood at $189.8 million, $287.7 million, respectively. Crown along with the Schiavello Group received a conditional planning approval in February 2017, for a new 388 room luxury six-star hotel and approximately 700 luxury apartments at 1-25 Queensbridge Street, Melbourne. The proposed Queensbridge Tower is a 50/50 Joint Venture between Crown and the Schiavello Group and Crown has the right to acquire and manage the hotel on completion. This tower will reinforce Crown Melbourne’s position as the largest single-site accommodation provider in Australia and create over 3,900 new jobs for Victoria. CWN is also progressing well with its buy-back program of ordinary shares. Over the past six months, the stock has moved up by 18.1% (as at April 19, 2017). Given the volatile conditions in Australian operations while other developments are getting in place, we give a “Hold” recommendation at the current market price of $ 12.20

Thorn Group Ltd

New initiatives to impact margins in the short term: Thorn Group Ltd (ASX: TGA) has recently made additional provision in its accounts with respect to compensation that may be payable to customers who did not meet minimum income thresholds for their contracts. Further, negotiations with ASIC have reached a point where it anticipates that ASIC will seek a civil penalty and require further compensation and remediation. Considering this, TGA highlighted for a further provision with a $4 million profit after tax impact in its financial statements for the year ending 31 March 2017. Accordingly, the group expects net profit after tax for financial year ending March 31, 2017 to be in the range of $24 million to $26 million. TGA is also setting itself to defend against a class action to be commenced with regards to its past lending practices. For the 2017 half year, TGA’s revenue rose by 2.8% while the group stated that the implementation of its business plan has been proceeding with the sale of NCML and gradual book run off of the consumer finance book releasing funds for reinvestment into the core businesses which generate improved rates of return on capital and have growth prospects. Consumer leasing has also been expected to strengthen its market position with added investment into an expanded and revitalized store network. Although, these initiatives seem to constrain margins in the short term, the same are expected to boost productivity with the introduction of modern technology and operating platforms to drive profit growth. Thorn Equipment Finance is expected to sustain its robust growth momentum with the growing receivables book underpinning future earnings. Thorn Trade & Debtor Finance is repositioning its business to have the brand, capability and systems platform in place to grow market share as the market undergoes a period of consolidation. Corporate costs are expected to remain somewhat elevated in the near term due to the cost of addressing regulatory matters. Over the past six months, the stock has declined by 24% (as at April 19, 2017). We give a “Hold” recommendation at the current market price of $ 1.31

National Australia Bank Ltd

Reduced charge for bad and doubtful debts: During Q1FY17 (Dec-2016), National Australia Bank Ltd (ASX: NAB) reported 1% yoy growth in revenue driven by growth in lending and higher trading income while the net interest margin (NIM) was broadly stable. However, cash earnings declined by 1% yoy to ~$1.6 billion due to higher operating expenses during the quarter mainly owing to related salary increases combined with higher project related costs including regulatory spend, and increased depreciation and amortization. Notably, the charge for bad and doubtful debts for the quarter declined 23% to $164 million driven by non-repeat of the increase in the collective provision overlay for mining, mining related and agricultural sectors. During the same period, specific provision coverage of gross impaired assets increased from 38.3% to 43.0%. The Group’s Common Equity Tier 1 (CET1) ratio declined by 30bps to 9.5% qoq due to the impact of the final 2016 dividend declaration. Further, as part of NAB’s ongoing commitment to maintain a strong and efficient capital position, NAB has considered issuance of a new ASX-listed Subordinated Tier 2 Capital security. Although, the operating environment is challenging as funding costs remaining elevated levels and intense competition, the bank seems to be on track to deliver more than $200 million in productivity savings. The bank has outperformed other big banks in the recent time and has delivered 19.3% returns in last one year (as at April 19, 2017). Though the business is robust, given that the stock is trading close to its 52 week high levels and a challenging environment on cost of funding persists, we give a “Hold” recommendation at the current market price of $ 32.75

G8 Education Ltd

Sound FY16 Results: For FY16, G8 Education Ltd (ASX: GEM) reported a revenue growth of 10.2% yoy to $77 million driven by fee increases and acquisitions in 2015 and 2016. Accordingly, underlying EBITDA and NPAT grew by 11.3% and 7.1% to $172 million and $93 million, respectively, aided by better performance from recent acquisitions. Further, company’s leverage position improved with the extension of SGD bond and bank working capital facilities by two years. For FY16, debt on balance sheet decreased by $44m with the repayment of unsecured note facility.
 
 
Financial Highlights (Source: Company Reports)
 
During FY16, acquisition activity was lower with 21 centers being settled against 44 in the FY15. On the other hand, investment in existing centers refurbishment increased by $4 million. Further, the $82.1 million in acquisition cash outflows includes $15 million in deposits paid for acquisitions due to settle in future. The group expects 2017 EBIT contribution from about 28 acquisitions to be approximately $7 million. Over the past six months, the stock has moved up by 17% (as at April 19, 2017).We give a “Hold” recommendation at the current market price of $ 3.65

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