As an investor, honesty is always the best policy. Of course, it is always possible to allow emotions to cloud judgements, and to focus on the best case scenario when it comes to the economic outlook or a company's future. However, being honest, focusing on the facts and acting in a logical manner is usually the best way to improve the chances of investment success.
So, while it is painful to admit it, Australian interest rates are likely to fall further before they begin to rise. That's because the macroeconomic outlook demands action, since the economy is under a threat of recession and, while commodity prices have stabilised of late, the RBA is likely to need more positive data over a long period in order to keep them from loosening monetary policy further.
As such, cash balances are unlikely to offer sufficient returns over the medium term, and so the dividends available through stocks such as Suncorp Group Ltd (ASX: SUN) and Super Retail Group Ltd (ASX: SUL) are likely to hold increasing appeal in 2016 and beyond. That's because they offer fully franked yields of 6.2% and 4.3% respectively and, looking ahead, are expected to increase dividends per share at an annualised rate of 7.6% and 7.3% respectively over the next two financial years.
In Suncorp's case, a key reason for its high forecast dividend growth rate is a bottom line which is due to rise from $0.87 on a per share basis last year to $1.06 per share next year. That's a rise of over 10% per annum and is at least partly due to Suncorp's focus on generating greater efficiencies via a simplification and optimisation programme which is expected to account to $170m in savings over the next three years.
Furthermore, Suncorp is a relatively stable business which is on a sound financial footing. This allowed it to pay a special dividend of $0.12 last year and, with $570m in common equity tier 1 capital held above its operating targets, it appears to be well-positioned to deliver continued dividend growth over the medium term.
Meanwhile, Super Retail is also seeking to make efficiencies to its business through a focus on improving its supply chain and also closing down unprofitable stores. This restructuring is set to aid profit growth of 15.5% per annum during the next two years, which means that the company's dividends are due to be well covered at 1.6x next year.
In addition, Super Retail recently reported that all of its three divisions (auto, leisure and sports) are performing in-line with expectations in the first 16 weeks of the year. As a result, Super Retail expects to continue its ambitious store refurbishment programme which will be a major component of capital expenditure spend of around $100m this year. And, with the integration of Workout World and Infinite Retail into its Sports division, as well as success in the rebranding of Rays Outdoors as 'Rays', Super Retail appears to be in a strong position to deliver further profitable growth and dividend increases in the medium term.
