When compared with falling interest rates, the dividend yields on offer from selected blue chip ASX companies are positively mouth-watering, writes Bruce Jackson of The Motley Fool.
Hold on to your hats, Fools.
As of writing, the S&P/ASX 200 index (ASX: XJO) (Index: ^AXJO) is up another 1% today. Yesterday it closed at a 15-month high.
According to The Australian Financial Review, Goldman Sachs head of institutional sales Richard Coppleson said in a note to clients…
"I'm not scared to say [the index] is going a lot, lot higher in the next 2.5 months."
Even the often bearish Alan Kohler on ABC news last night called the recent market gains "a breakout overall," offering this chart by way of explanation.
Source: ABC News
Regular readers will know I don't have much time for wiggly charts, Bollinger bands, candle-sticks, double tops, and key resistance levels.
You'll also know I look to buy stocks when they are cheap, whatever the mood of the market.
Spoilt for choice
Today I'm seeing value stocks, growth stocks, high-yielding stocks, blue-sky stocks and dogs of stocks…a selection much like the market always serves up to willing participants.
A few months ago, with the market down in the dumps, it was relatively easy pickings, as witnessed by 20% or more jumps in the share prices of large-caps including Westpac Bank (ASX: WBC), ANZ (ASX: ANZ) and Lend Lease (ASX: LLC).
Lest you think today's market must offer slimmer pickings, I'm seeing more value than ever.
By comparison with plunging interest rates on term deposits, the dividend yields on offer from selected blue chip ASX companies are positively mouth-watering.
This week, Mercer has ranked Investors Mutual as the top Australian equities fund manager over the past year, their Australian Share Fund gaining 20%.
Their secret?
"Our focus thus remains on dependable, quality companies that are not overly dependent on economic conditions and that can continue to deliver a strong and reliable earnings stream from which dividends can continue to be paid."
A look at the fund's top 10 holdings as at September 30, 2012 tells the story. I draw your attention to the "Yield 2013" column…
Source: Investors Mutual Limited, Australian Share Fund Performance, September 30, 2012
It's not rocket science.
Yet time and time again I see many investors getting their knickers in a knot and their jocks in a jam trying to look at charts, the Spanish economy, speculative mining stocks, penny shares and any matter of complicated trading strategies.
When I buy and sell stocks, I don't try to time the market, or the economy.
Buy cheap, sell dear
If it's cheap, relative to its future earnings prospects, I buy. If it's expensive, I sell.
I don't get it right all the time, as witnessed by my recent confession that I bought shares in rare-earths miner Lynas (ASX: LYC) at $1, at a time when I thought they couldn't go much lower.
Today Lynas shares trade at 65 cents.
Lynas is a company Scott Phillips wouldn't touch with a barge pole. Far too risky, and the investment case is predicated on a binary outcome – whether their Malaysian processing plant is ultimately approved for operations or not. Why take the risk?
Overlooked & unloved…just the way I like my stocks
I asked Scott about the catalyst behind why he's finding value in today's market…
"I'm not big on catalysts, as you know, but there is some real sentiment-driven opportunity (from the pessimism in some stocks and sectors).
Mining services companies have been smashed, some dragged down too far, and there are some larger-cap ASX companies that have very solid downside protection and trade on attractive dividend yields.
Of course, I'm still finding opportunity in overlooked and unloved companies and sectors…I think that's probably the biggest theme."
I for one am very excited about the opportunities on offer, and having bought a Motley Fool Share Advisor recommended stock last week, am keen to add another quality ASX stock to my portfolio.
228% up…now that's what I call an exciting stock
Of course, as we saw with Investors Mutual above, investing is not rocket science. There are plenty of decent ASX blue chip stocks out there trading on modest valuations and attractive dividend yields.
It's just that if you want to put a bit more excitement in your portfolio, and have the opportunity to buy the next 228%* winner, you may have to get little more adventurous…
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Of the companies mentioned above, Bruce Jackson has an interest in Lynas, Westpac, Commonwealth Bank, NAB, Wesfarmers, BHP and ANZ. The Motley Fool's disclosure policy is accountable. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).
* As of Thursday October 18th 2012, the average return of all our Motley Fool Share Advisor recommendations was 23.7%, compared to the market's return of 8.4%, both including dividends. Including dividends, our best performer was up over 228% in less than a year.
