From the sound of it, interest rates will be lower for longer – even longer than the RBA expected. Clearly, apart from the housing market, which is only performing well because of lower interest rates, no other industry is running hot and the miners are still seeing falling commodity prices.
According to the RBA governor Glenn Stevens, it may be a couple of years or more before jobs and salary growth would be high enough to need to be reined in. Again, homeowners and real estate agents will be rejoicing if interest rates go even lower.
Here are two companies that stand to benefit from "much lower for longer" interest rates.
DuluxGroup Limited (ASX: DLX) is the maker of paints, as well as garden and home improvement products. Weekend DIY customers will know its brands like Dulux and British Paints, Selleys, Yates and Parchem.
Lower interest rates will spur on more house sales, which has a knock-on effect of more home improvement and repair. Consensus earnings growth forecasts are for a solid 9.6% annually for the next two years, but that could be revised upwards in an easier rates environment. The stock yields a decent 3.5% fully franked. More painting and gardening should translate into higher earnings, so this stock may be a good way to take advantage of record low interest rates.
Caltex Australia Limited (ASX: CTX) is a refiner and fuel distributor that has one of the biggest petrol station networks in Australia under the Caltex brand name as well as the co-branded Caltex Woolworths.
Lower world oil prices are currently making petrol cheap at the bowser, so people will drive more. On top of that, if homeowners have more money left over from lower mortgage repayments, they'll be encouraged to drive and even travel by air more. Both mean more fuel consumption and better revenues for Caltex.
Also, the company is downsizing its refining business and focusing on its distribution network. By that alone, earnings growth is expected to rise in the double digits over the next several years. This is a good stock for the short to mid-term as the business changes.
