Bell Potter's Charlie Aitken is on board, saying investors should focus on "reliable dividend growth stocks."
BT Investment Management's Crispin Murray says "the search for yield will continue," saying he's focusing on companies that can surprise with higher than expected dividends.
It's music to my ears!
And no wonder, too, given the pathetically low level of interest rates on offer from term deposits. I mean… a man can't generate a decent income on just 3% alone!
And in case you think it's just a matter of waiting until interest rates rise again, consider ANZ Research's brand new forecast of the RBA lowering the cash rate to 2% by mid-2015.
Mid-2015? That's just a few short months away.
Meanwhile, mining stocks remain in the doldrums. Bank stocks are going nowhere fast. The whole ASX is on the nose, down again today. It's enough to have you sitting on the sidelines at best, selling out at worst.
Never fear, Foolish readers.
On the contrary, my advice is to embrace the volatility, and particularly the higher dividend yields that come with lower share prices.
It's exactly what I focus on at Motley Fool Dividend Investor, the subscription-only newsletter advisor service I run for thousands of ordinary investors like you.
In fact, I'm liking these lower shares prices and higher dividend yields so much that just a couple of days ago, I advised members of Motley Fool Dividend Investor buy a small "under the radar" ASX stock trading on a 4.3% fully franked dividend yield, which is 6.1% when grossed up for franking credits.
More music to my ears, and to the portfolios, and ultimately bank accounts, of thousands of ASX investors.
Beats the pants off an RBA cash rate of what could be 2% in just a few short month's time.
That said, not all dividend yields are created equal.
Now I'm the first to admit I like a cheap stock, and for those of us who love a bargain, sharp falls can often be a great buying opportunity.
In fact, there's one 'blue chip' business that is presently selling at half the price it was only 3 months ago.
For dividend lovers, such as myself, based off its 2014 forecast dividend, it trades on a yield of 5.4%, fully franked, which grosses up to 7.7%.
Interested? Surely any blue-blooded dividend lover would be chomping at the bit to take a bite out of this blue chip ASX stock.
I won't give you the name of the company, yet. I don't want to bias you.
I'll say this, though. It's in the ASX top 50 and last year it generated over $3.6 billion sales. The business has been consistently profitable over the past decade, and has paid a fully franked dividend each and every year over that period (which includes the GFC).
At present, shares are trading at a price that's less than the net value of it's assets. Moreover, it's likely the business will be around for many years to come and, according to CommSec, there are presently 3 'strong buy' recommendations from brokers.
Before we rush to buy, there are some other 'features' of the business you may want to be aware of.
The business is extremely capital intensive; that is, it requires a huge amount of money to establish and operate this business. Much of the profit that is made needs to be reinvested in order to sustain operations.
Indeed, profit alone has been insufficient to grow the business, and instead the company has conducted a number of capital raisings over the past decade, with the number of shares on issue increasing by over 50% in that time. Total long term debt has grown over four fold in that period.
The product sold is an undifferentiated commodity and the company has no ability to set the price it sells for. In fact, the price of their product is typically volatile and extraordinarily difficult to predict, if not impossible. Unfortunately, the business must make investment decisions years ahead of when the product will be ready to sell.
To make matters worse, this company faces significant regulatory and environmental risks, and is presently facing major structural challenges. Not only is the character of its industry being turned on its head, but there exists real disruption potential thanks to new technologies.
The company's assets have one specific use, are located in specific areas and cannot be moved or repurposed. The assets can't be sold at a price that would come close to recovering the cost of investment.
Long term investors have generated an average return of just 1.1% per year over the past decade — and that's even when you include the impact of dividends.
Still interested?
You may have guessed that I'm talking about Santos Ltd (ASX:STO); one of our largest and oil and gas producers.
Understandably, the share price fall can make the shares seem more attractive. However, it's worth remembering the that price alone will tell you virtually nothing about the investment potential. As Warren Buffett says:
"Price is what you pay, value is what you get!"
Investors would do well to ignore the temptation of the dividend yield — it's only as reliable as the earnings (i.e. not very).
Forget that shares trade below net asset value — those assets will likely be written down in the near future.
It's large size doesn't make Santos a low risk proposition, and certainly doesn't mean it deserves the 'blue chip' label.
Yes, the price of oil could recover, and the share price may indeed see a strong bounce. But that's a gamble, and one where the odds are unknowable. It's just as likely that the oil price could drop another 50% — something the options market seems to be expecting (though it's far from a reliable guide).
Why take the risk?
Why not instead consider a company like Woolworths Limited (ASX:WOW) or Coca-Cola Amatil Ltd (ASX:CCL) whose share prices have likewise dropped lately, but don't face the same unappealing business features?
I own both stocks myself, even going so far as to recommend one to subscribers of the advisory service I run, Motley Fool Dividend Investor.
These are companies that, despite their own challenges, have meaningfully grown shareholder wealth over the past decade, and are providing far better dividend and growth potential.
Companies that have grown their business without meaningfully diluting shareholders through capital raisings.
Companies that possess strong and durable competitive advantages, valuable brands and real pricing power.
And, importantly, companies facing far fewer risks.
It's easy to be lured into buying a big name after a sharp fall, but rather than ask "is now the time to buy?", investors should instead be asking "is it worth buying at all?".
My choices are clear.
Pass on Santos. Buy Woolworths and Coca-Cola Amatil.
Pass on term deposits at 3%. Buy high quality dividend paying stocks.
The end.
