A LIST of Australia's 10 most popular stocks shows retail investors face a difficult decision: they can accept lower rates of return from some of their favourite companies, or they can look for other stocks to invest in.
Telstra was the only stock on the list to see its share price go up, with popular stocks such as AMP, Westpac and Wesfarmers performing worse than the market in the past 12 months.
Telstra shares have risen more than 20 per cent in value in the past 12 months as investors welcomed the billions of dollars flowing from the telco's national broadband network deal on top of a dividend yield that reached 8 per cent last year. If you had bought in 12 months ago, as well as the share-price gains you would have got a double-digit yield based on the share price at that time.
Analysts have warned that the sectors to which the most popular stocks belong banking and finance, retail, and resources hold little prospect for immediate earnings growth.
"This is the old headache for retail investors," Bank of America Merrill Lynch chief equity strategist Tim Rocks said. "Overall the market's tough, but it has been tougher for retail investors because the big mature dividend-paying companies they tend to own have all done pretty badly, [some] worse than the market. The recent peak in commodity prices would make things harder for resource companies, adding to investor concern, while the banking sector remained under pressure from changes in the economy and the end of the leveraging cycle."
But offsetting falls in shares prices, some stocks had delivered reasonable dividends in the past 12 months, particularly banks.
"The deposit rates that the banks are offering have gone down, and if you can only get 4 to 5 per cent on bank deposits then a 7 or 8 per cent yield on some of these stocks still looks attractive," Mr Rocks said.
"[But] you've still got to accept that you're going to make your dividend yield but you're not going to make much else, [the stock's] not going to grow very strongly."
Coles will release its quarterly sales results today and is expected to beat rival Woolworths for the 11th consecutive quarter not that you would know from the share-price performance in the past year, with Coles parent Wesfarmers down double digits compared with Woolworths' more modest falls.
This performance is more an overall reflection on the Wesfarmers conglomerate, which has had trouble with its insurance and coal divisions. It is also increasing investment spending and not everyone is sure it will generate an acceptable return.
Frequently Asked Questions about this Article…
Why did Telstra shares rise while many other popular Australian stocks fell?
Telstra was the only stock among Australia’s 10 most popular shares to see its price rise over the past 12 months. Investors welcomed billions of dollars flowing from the telco’s national broadband network (NBN) deal, and Telstra’s share price climbed more than 20% in the year covered by the article.
How high was Telstra’s dividend yield and what would investors have received if they bought 12 months ago?
Telstra’s dividend yield reached about 8% last year. The article notes that if you had bought Telstra 12 months earlier, you would have benefited from both the share-price gains (over 20%) and, based on the earlier share price, a double‑digit yield.
Which sectors did analysts say have little prospect for immediate earnings growth?
Analysts warned that the sectors containing many of the most popular stocks—banking and finance, retail, and resources—hold little prospect for immediate earnings growth, making it tougher for retail investors seeking growth from familiar stocks.
Are bank stocks still attractive compared with bank deposit rates?
The article points out that bank deposit rates had fallen to around 4–5%, so some bank stocks offering yields of 7–8% still looked attractive on an income basis. However, analysts cautioned investors should accept that those stocks may provide yield but limited earnings or price growth.
What choice do retail investors face when popular dividend-paying shares underperform?
Retail investors face a trade-off: accept lower rates of return and rely on mature, dividend‑paying favourites, or look beyond the most popular names for stocks with better growth prospects. The article quotes a strategist describing this as an ‘old headache’ for retail investors.
How have Coles and Woolworths been performing, and what’s happening with Wesfarmers?
Coles was expected to beat rival Woolworths for the 11th consecutive quarterly sales result, yet share-price performance didn’t fully reflect that. Wesfarmers (Coles’ parent) fell by double digits over the year and has faced trouble in its insurance and coal divisions while increasing investment spending, raising questions about future returns.
Did any popular stocks still deliver reasonable dividends despite falling share prices?
Yes — the article notes that despite share-price falls for some favourites, a number of stocks, particularly banks, had delivered reasonable dividends over the past 12 months, helping offset capital declines for income-focused investors.
What risks did analysts highlight for resource and banking companies going forward?
Analysts warned that a recent peak in commodity prices could make conditions harder for resource companies, while the banking sector remained under pressure from economic changes and the end of the leveraging cycle—factors that could limit near‑term earnings growth.
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