Did I miss any news coming out of Canberra?
The Prime Minister of today bears an uncanny resemblance to the Prime Minister of last week.
Nothing to see here. Carry on, Foolish investors.
Yield, yield, yield…
It's all over the newspapers. It's all investors care about. In this low interest rate environment, it's all anyone wants.
Witness the sharemarket's 12 days in a row of gains, a record run of gains.
Witness the share price of Commonwealth Bank of Australia (ASX: CBA) soaring above $93, in total disregard for valuation. It's all about CBA's fully franked forecast dividend yield of 4.5% (or 6.5% when grossed up for franking credits), a yield that puts term deposits to shame.
Speaking of term deposits, my elderly father has just rolled over an eight month term deposit at the princely interest rate of just 2.9%. The income might just cover his annual rates bill.
More sobering, the only way for local interest rates from here is down. The bond market is already ahead of the curve, 10-year bonds yielding just 2.45%.
Bonds are not term deposits. They are not risk free. Bond prices move up when yields fall, and down when yields rise.
But the bond market is telling you something — it's telling you where interest rates are headed over the long-term.
The sad fact is 2.45% per annum over the next ten years isn't going to keep you in the lifestyle you've been accustomed to. That fact is only now dawning on thousands of retirees, and pre-retirees (those aged 50 to 65 years old) — hence the 12 days in a row of sharemarket gains, sending the S&P/ASX 200 index up to 5,800.
And the market is likely not done yet. While most of the action has been concentrated on the big four banks, Telstra Corporation Ltd (ASX: TLS), with a little bit of Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) thrown in for good measure, there's a whole other universe of dividend paying stocks just waiting to be discovered. Read on for such example…
Like many Australian investors, my family already owns its fill of banks, Telstra and supermarkets. Their yield compares well to term deposits, but their valuations compare badly on a historical basis, and to a selection of mid-cap and even small-cap ASX stocks.
Here at the Motley Fool, we're always trying to get in ahead of the curve.
We launched Motley Fool Dividend Investor — our subscription-only stock-picking service focusing exclusively on dividend-paying stocks — back in October last year, at a time when many pundits were still predicting interest rates would rise in 2015.
Regular readers of our free Motley Fool Take Stock email will know I have long been suggesting the next move in interest rates was likely down.
Retirees won't thank me for being right, seeing as their term deposit rates just got whacked again. But hopefully I gave the confidence to at least some readers to jump into dividend-paying stocks ahead of last week's interest rate cut, ahead of the curve.
The next frontier for income-starved ASX investors is likely to be mid-cap ASX stocks. Last week I mentioned how I'm already sitting on a nice profit on my freshly minted Flight Centre Travel Group (ASX: FLT) shares, the 4% fully franked dividend yield being the icing on the cake.
Today, I've got my eye on a recent IPO, fast-jewellery retailer Lovisa Holdings Ltd (ASX: LOV). The company today reaffirmed it was on target to achieve its prospectus forecasts, with first half sales growth up a whopping 33% on the corresponding period last year.
I'm not usually a fan of retailer stocks. Customers are very fickle, profit margins are thin, and competitive advantages fleeting. OrotonGroup Limited (ASX: ORL) anyone?
So far, Lovisa is bucking the trend. They are focused on their niche (affordable jewellery targeting the 25-45 year old fashion-conscious age group), have few direct competitors, and are clearly taking market from department stores like Myer Holdings Ltd (ASX: MYR) and David Jones.
Three things in particular attract me to Lovisa…
1) Gross margins of 80%, a simply outstanding level of profitability in retail.
2) Like for like sales growth of 12%, simply stunning at a time when retailers like The Reject Shop Ltd (ASX: TRS) are struggling to post any growth.
3) The forecast fully franked dividend yield of around 4.7%.
In this low interest rate environment, investing nirvana is a growth stock trading on a juicy fully franked dividend yield.
I don't hold Lovisa shares, yet anyway. But you can definitely put me down as interested.
One other mid-cap stock I'm MORE than interested in is Andrew Page's next stock pick, out tomorrow exclusively for Motley Fool Dividend Investor members.
In honour of the shenanigans playing out in Canberra, I'm going to call it Andrew's "Captain's Pick". I'm sure it will work out a little better than our Prime Minister's most recent effort.
Andrew Page is our resident dividend expert. What he doesn't know about dividends is not worth knowing.
Andrew's 'ahead of the curve' Motley Fool Dividend Investor stock-picking service is off to a stunning start, his share tips already showing this strong sharemarket a clean pair of heels.
I've committed to investing $100,000 of my family's own money behind Andrew's Motley Fool Dividend Investor share recommendations, so it's a case of so far so good for me.
But it's the future that counts, and on that front, I've rarely seen Andrew as excited now as he is about tomorrow's brand new ASX "Captain's Pick" for Motley Fool Dividend Investor members.
Without giving anything away, what I can tell you is Andrew's discovered an industry up and comer that is disrupting the incumbents, growing sales at over 55% per annum since listing, and offering investors a very juicy 6% fully franked dividend yield. In just seven years, this company has gone from 0% market share to the second largest in its chosen market.
Investing nirvana? Sounds mighty close to me.
And the best thing of all? You've likely never heard of the company. It was new to me too, being a mid-cap company that's simply off the radar of the big money managers.
But not for much longer, especially if I'm right about mid-cap stocks being the next frontier for income-hungry investors, particularly SMSFs.
Warren Buffett is fond of quoting ice hockey legend Wayne Gretzky's advice:
"I skate to where the puck is going to be, not to where it has been."
Today, the puck is Commonwealth Bank. Tomorrow, it may well be high-yielding "under the radar" mid-cap ASX stocks, like his upcoming Captain's Pick for Motley Fool Dividend Investor, complete with 6% fully franked dividend yield.
I'll be jumping on board, after Motley Fool Dividend Investor subscribers of course (as per our strict ethical trading rules). Will you join me?
