Ten key fully franked dividend stocks

 
BHP Billiton Limited


BHP Details

Strengthening assets and production base: BHP Billiton Limited (ASX: BHP) and WPL have entered into a binding sale and purchase agreements to acquire half of BHP Billiton’s Scarborough area assets in the Carnarvon Basin, located offshore Western Australia for US$400 million. This may weigh for value for an undeveloped asset and would reduce capex obligation. Moreover, Samarco, the Brazilian iron ore joint venture between Vale and BHP, could restart by the second half of next year. Additionally, BHP has exceeded FY 16 full year production guidance for petroleum, copper and metallurgical coal, and has achieved the record full year production at Western Australia Iron Ore (WAIO). For the full year results, underlying EBITDA of US$12.3 billion, underlying EBITDA margin of 41%, underlying attributable profit of US$1.2 billion while attributable loss of US$6.4 billion has been reported by the company. Meanwhile, BHP stock rose 12% during this year to date (as of September 12, 2016). There are headwinds such as commodity price volatility; however, given the potential, we maintain “Buy” recommendation on this dividend yield stock at the current price of $20.00
 

BHP Daily Chart (Source: Thomson Reuters)
 
Rio Tinto Limited


RIO Details

Strong operational performances:Rio Tinto Limited (ASX: RIO) reported a consolidated sales revenue of $15.5 billion in 1H 2016 which is $2.5 billion lower than the 1H 2015 due to the decline in commodity prices. On the other hand, Rio has focused on cost reduction, and accordingly, reduced costs by $0.6 billion and maintained 33% EBITDA margins in 1H 2016. The group has generated net cash from operating activities of $3.2 billion and reported underlying earnings of $1.6 billion. Moreover, RIO has delivered strong operational performances in iron ore, bauxite and aluminum, with all key commodities on track to meet full year guidance. Rio Tinto also lately completed the sale of Mount Pleasant coal assets. Meanwhile, the stock rose 9.1% in the last three months (as of September 12, 2016) and has a good dividend yield. We maintain our “Buy” recommendation on the stock at the current price of $47.46
 

RIO Daily Chart (Source: Thomson Reuters)
 
Wesfarmers Ltd


WES Details

Weak net profit after tax and operating cash flows in FY16:Wesfarmers Ltd (ASX: WES) reported a 5.7% growth in the operating revenue to $66 billion in FY 16. On the other hand, the group witnessed 83.3% fall in the net profit after tax to $407 million.
 

FY 16 Financial Performance (Source: Company Reports)
 
Meanwhile, strong performance in the retail portfolio & WesCEF had offset the losses at Target and Resources to a certain extent. WES is investing in enhancing the retail store networks. But, the group’s FY16 operating cash flows declined 11.2% to $3,365m due to the higher working capital investment. Despite having a good dividend yield, we give an “Expensive” recommendation on the stock at the current price of $42.14
 

WES Daily Chart (Source: Thomson Reuters)
 
Suncorp Group Ltd


SUN Details

Sustainable return on equity expected: Suncorp Group Ltd (ASX: SUN) has reported an NPAT of $1,038 million in FY 16 as compared to $1,133 million in the prior corresponding period. This is due to the lower returns from investment markets and a reduction in reserve releases. The General Insurance underlying ITR is of 10.6% due to the increased cost of settling claims and lower investment returns and the total GWP increased by 1.8% to over $9 billion. On the other hand, Suncorp Bank net profit after tax grew 11.0% due to continued home lending growth, improved net interest margins and ongoing improvement in credit quality. Suncorp Life net profit after tax grew 13.6% and the underlying profit increased by 9.7% to $124 million. The underlying profit included the positive lapse and claims experience of $21 million. SUN expects to get a sustainable return on equity of at least 10% which means an underlying ITR of at least 12% and still maintaining the dividend payout ratio of 60% to 80% of the cash earnings. Meanwhile, SUN stock rose 4.5% in the last six months (as of September 12, 2016), and still the company is having a good dividend yield and is trading at a reasonable P/E. Accordingly, we give a “Buy” recommendation on the stock at the current price of $12.43
 

SUN Daily Chart (Source: Thomson Reuters)
 
Australian and New Zealand Banking Group Ltd


ANZ Details

Boosting capital position: Australia and New Zealand Banking Group Ltd (ASX: ANZ) is raising fund via the issue of 10 million ANZ Capital Notes 4 (ANZPG) at an issue price of $100.00 per security to raise $1.3 billion with the margin set at 4.7% per annum. ANZ would use these proceeds to refinance CPS2 and for general corporate purposes. With this move, the bank would comply to an additional Tier 1 Capital for the purposes of ANZ’s regulatory capital requirements. Meanwhile, ANZ stock rose 9.22% in the last three months (as of September 12, 2016), and still the bank is trading at reasonable valuations.
 

ANZ’s consolidated capital adequacy ratios (Source: Company Reports)
 
ANZ stock has a good dividend yield and is trading at a low P/E. The bank’s focus on personal banking and customers would continue to boost the bank stock higher. Accordingly, we give a “Buy” recommendation on the stock at the current price of $25.85
 

ANZ Daily Chart (Source: Thomson Reuters)
 
National Australia Bank Ltd


NAB Details

Focus on cost control: National Australia Bank Ltd (ASX: NAB) has recently updated its domestic Debt Issuance Programme. The bank had earlier reported a 3% fall in unaudited cash earnings for continuing operations to approximately $1.6 billion for the third quarter 2016 as compared to corresponding period of 2015. In fact, the charge for bad and doubtful debts grew 21% to $228 million, rising concerns over the group’s asset quality. On the other hand, the bank is now focusing on cost control to enhance their performance. In addition, the sale of 80% of the life insurance business to Nippon Life would be finished during the second half of calendar year 2016 following the merger of five super funds to create Australia’s largest retail super fund with approximately $70 billion in funds under management. Meanwhile, NAB stock corrected over 3.97% in the last five days (as of September 12, 2016). We give a “Buy” recommendation on the stock at the current price of $26.25
 

NAB Daily Chart (Source: Thomson Reuters)
 
Westpac Banking Corp


WBC Details

Rise in bad loans:Westpac Banking Corp (ASX: WBC) recently notified the distributions in respect to securities for South32, Flight Centre, Healthscope, CSL and BlueScope Steel. Moreover, the group was said to boost capital position via offer of NZ$250 million of unsecured, subordinated and fixed rate notes. On the other hand, the bank had revealed the rise in bad loans across both its business and its household lending. Despite having a good dividend yield we believe the stock pressure would continue which already fell 12% during this year to date (as of September 12, 2016). We give an “Expensive” recommendation on the stock at the current price of $28.70
 

WBC Daily Chart (Source: Thomson Reuters)
 
Commonwealth Bank of Australia


CBA Details

Subdued Outlook:Commonwealth Bank of Australia (ASX: CBA) reported a 3% growth in cash NPAT to $9,450 million in FY 16. Moreover, CBA’s CET1 capital ratio is 10.6% on an APRA basis as on 30^th June 2016, up from 9.1% as at 30^th June 2015 and the CET1 capital ratio is 14.4% on an internationally comparable basis up from 12.7% in FY 15. But, the cash return on equity is 16.5% which is down 170 basis points in FY 16 as compared to FY 15. CBA’s Net Interest Income is up 7% to $16,935 million while the Net Interest Margin is down 2 basis points to 2.07% in FY 16. In addition, CBA has given subdued outlook as there is strong underlying GDP growth and stable employment. The bank’s long-term senior unsecured rating has been affirmed at Aa2 by Moody’s but the outlook has been downgraded to negative from stable. Meanwhile, CBA stock fell over 7.6% in the last four weeks (as of September 12, 2016) and we believe the pressure would continue in the coming months. Despite having a decent dividend yield, we give an “Expensive” recommendation on the stock at the current price of $69.50
 

CBA Daily Chart (Source: Thomson Reuters)
 
Telstra Corporation Ltd


TLS Details

Single digit growth expected in FY 17: Telstra Corporation Ltd (ASX: TLS) responded to ACCC mobile roaming declaration inquiry and has said to commence an inquiry to determine about declaring roaming services. The company has reported a 6.3% growth in revenues to $28.3 billion in FY 16 and a 36% growth in the net profit to $5.8 billion including $1.8 billion from sale of Autohome shares as compared to FY 15. The group had resorted to the total of $1.5bn of the share buyback in which $1.25 billion was off-market buyback and $250 million was on-market buyback. Moreover, TLS has added 560,000 mobile customers and 235,000 fixed broadband customers in FY 16. On the other hand, TLS performance is limited despite their initiatives and gave an outlook of ‘mid to high’ single digit revenue growth, and ‘low to mid’ single digit EBITDA growth in 2017. TLS stock fell 6.73% in the last three months (as of September 12, 2016), and we believe the stock pressure would continue despite having a lucrative dividend yield. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $4.94
 

TLS Daily Chart (Source: Thomson Reuters)
 
Woolworths Limited


WOW Details

Efforts to withstand competition: Woolworths Limited (ASX: WOW) has implemented the new operating model to further increase the accountability into the business. WOW will separately disclose the financials of Endeavour Drinks Group and is progressing on exit of Home Improvement business. Moreover, WOW has reported its first annual net loss of A$1.2 billion ($913.6 million) in FY16 as compared with a net profit of A$2.1 billion the previous year. The loss included a one-off charge of A$1.8 billion to quit a hardware joint venture with U.S.-based Lowe's Companies.
 

FY 16 Financial Performance (Source: Company Reports)
 
On the other hand, WOW has revised their strategies for driving business transformation to withstand the ongoing rising competition. The group’s investment on pricing, improving customer satisfaction coupled with improving GDP in Australia would continue to support the stock performance.  Meanwhile, WOW stock rose 5.5% in the last three months (as of September 12, 2016). Accordingly, we maintain a “Buy” recommendation on this dividend yield stock at the current price of $22.42
 

WOW Daily Chart (Source: Thomson Reuters)

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