Summer exposure: Westpac may buck the investor trend

Bank stocks tend to underperform from November to March because the big banks (Westpac, ANZ and NAB) go ex‑dividend in the first half of November. After that payout date many investors rotate out of banks and into other sectors—particularly the big miners—seeking returns. For dividend investors this calendar effect is important to factor into timing and portfolio exposure over the summer months.

Westpac beat market expectations on its profit result and will meet Basel III capital requirements on January 1 with more than sufficient tier 1 capital. Management didn’t rule out active capital management in 2013 (special dividends or buybacks). Using a payout ratio of about 65% after the DRP, the article suggests a conceivable ordinary dividend of around $1.74 in 2013 plus a possible special dividend of roughly 20–30 cents, which could translate to a fully franked yield in the 7.5–8% range. That combination makes Westpac an attractive dividend exposure for summer, while still warranting usual investor caution.

According to the article: NAB looks cheapest of the big four but is still battling issues in the UK; ANZ has a strong balance sheet and capital position but carries execution and risk considerations as it pursues further growth in Asia; and CBA is relatively expensive and may be quiet until the new year as investors await its result and dividend around February. Each bank has different trade‑offs between valuation, growth risk and dividend prospects.

Yes. The article notes that once banks go ex‑dividend investors often shift capital into sectors such as the big miners. Recent market action showed BHP and Rio Tinto finding a bottom and moving higher over the past month, illustrating that miners can attract investor interest once bank dividend dates pass.

Capilano listed on the ASX in July and has seen a significant shareholder change with Saleslink Australasia taking a 19.9% stake. Saleslink is likely to seek board representation rather than a full takeover. Capilano controls nearly half of Australia’s roughly $110 million honey market. The company has a market capitalisation around $19 million and $13 million of debt, valuing it at about 6.5 times EBITDA. After heavy spending on stock and equipment in 2012, Capilano is expected to generate strong free cash flow in 2013, which should allow it to reduce debt and potentially pay a dividend—facts investors should weigh against small‑company risks.

Infomedia, an online publisher of car parts and pricing, has restructured costs and its product suite and has seen a recent rebound in the share price. Management forecasts a profit of $8–9 million for the year to June 2013, implying about a 12.5x forward price‑earnings ratio. The company reports roughly a 23% return on equity and a net cash balance sheet. Revenue has been flat in recent years due to a strong currency, so a steady or weaker dollar could be a tailwind. There are also rumours a large shareholder may sell down, which could present an entry opportunity but also adds volatility.

The article states Westpac will enter under Basel III rules on January 1 with more than sufficient tier 1 capital. That stronger capital position gives the bank flexibility for capital management (including dividends, specials or buybacks) and provides investors more comfort about dividend sustainability—although any dividend outlook still depends on future profits, payout policy and regulatory guidance.

Key risks highlighted include seasonal rotation away from banks after ex‑dividend dates, country‑specific problems (for example NAB’s UK issues), strategic risks (ANZ’s Asian expansion), and valuation risk (CBA being relatively expensive). For small caps like Capilano and Infomedia, watch balance‑sheet leverage, recent heavy capital spending, reliance on cash flow recovery, currency sensitivity, and the potential impact of major shareholder sales. These factors can affect dividend prospects, share price volatility and timing of any investment.