Reflecting on the performance of the ASX during the last 10 years, it is easy to see why a number of Aussie investors are disappointed. After all, the index has risen by just 29% since August 2005, which works out as an annualised increase of just 2.6%. And, while dividends will have boosted that figure to provide a more generous total return, it remains somewhat disappointing – especially given that Australia has been hit less hard than other developed nations by the global financial crisis.
In fact, even the UK's main share index, the FTSE 100, has risen by almost as much as the ASX, with it being up 24% in the last decade. And, with the US main market, the S&P 500, soaring by over 70% during the same period, the ASX should have performed much better.
Of course, a number of stocks have delivered exceptional capital gains since 2005. Two fine examples are Commonwealth Bank of Australia (ASX: CBA) and Super Retail Group Ltd (ASX: SUL). Their share prices have risen by 132% and 213% respectively and, looking ahead, further stunning gains appear to be on the cards.
For example, Super Retail continues to offer stronger growth potential than many of its retail peers. And, while its earnings growth rate of 15% per annum during the last 10 years may not be matched in the medium term, its price to sales (P/S) ratio of 0.87 continues to offer good value for money. Furthermore, while Super Retail trades at a premium to the retail sector, with it having a P/E ratio of 17.5 versus 15.3, its stronger growth potential makes its shares relatively appealing at the present time.
Certainly, the falling interest rate may make the products that Super Retail imports more expensive and, with the RBA appearing to favour a dovish rather than hawkish stance right now, this could eat into Super Retail's margins. However, this is likely to be offset by a more robust consumer spending environment as purchasing on credit becomes cheaper and more appealing, which should provide a degree of support for Super Retail's top and bottom lines.
Meanwhile, CBA may be in the midst of beefing up its capital ratios, with regulators recently having put into place a requirement for Aussie banks to hold more capital, but its income prospects remain very strong. That's because it presently yields 4.7% from a dividend that is covered over 1.3 times by profit, thereby highlighting it as a sustainable shareholder payout.
And, while dividend growth may be less than the 12% per annum growth that has been enjoyed by the bank's investors over the last five years, CBA is still expected to deliver a rise in dividends of 4.5% per annum over the next two years. That's three times the current inflation rate of 1.5% and, while a loose monetary policy may stimulate the price level to rise at a faster rate, CBA is likely to see its shares demanded to an even greater extent as investors chase high yields that can beat inflation.
