According to AMP economist, Dr Shane Oliver, the Australian share market could be set for a "Santa rally".
"AMP Capital chief economist Shane Oliver is sticking to his call for a 'Santa rally' heading into Christmas and thinks the index can hit 5500 by year's end," The Sydney Morning Herald reported.
If he's right, that'd mean the local share market — or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) — would need to rally around 7.8% from today's level of slightly more than 5,100 points. No doubt, savvy investors will be frantically seeking the sectors and stocks that will lead the recovery.
The resources sector could bounce back and provide a relief rally coming into Christmas. However, that appears unlikely because commodity prices remain depressed and the medium-term outlook is almost entirely dependent upon growth in the Chinese economy – which appears to be slowing.
The financial sector, led by the major banks, is also under pressure against a backdrop of slowing credit growth and increased competition. Nonetheless, demand for high dividend yields could counteract their swooning share prices before year's end.
My three favourite dividend stocks for a relief rally
While resources and financials are off the table, if I had to pick my favourite ASX dividend stocks for a rally coming into Christmas, here's three I'd choose first:
- Retail Food Group Limited (ASX: RFG). Retail Food has been sold down 23% since the beginning of the year on fears of a slowing economy, an expansion of its debt profile and broader market malaise. Nevertheless, Retail Food has a strong track record for growth and its exposure to Gloria Jeans (coffee) and a number of defensive fast casual dining outlets offers conservative investors healthy exposure to retail. Its shares are forecast to yield 5.4% fully franked over the coming 12 months.
- Flight Centre Travel Group Ltd (ASX: FLT). Like Retail Food, Flight Centre has been heavily discounted in 2015. The falling dollar, increasing competition from discount comparison sites and Airbnb are also spooking investors. However, Flight Centre remains an attractively priced, cashed-up and well-managed retail travel operator. Its growing international business may also hold long-term promise. It's forecast to pay 4.1% fully franked in the year ahead.
- Telstra Corporation Ltd (ASX: TLS) is my favourite dividend stock in the ASX 20. Divestment of its copper cable network, a new CEO and an Asian expansion are areas of uncertainty, but they also present opportunities for the company. Understandably, investors appear to be unenthusiastic by the $65 billion company's recent fall in profit. However, at today's price of $5.22 there's a lot to like about owning Telstra shares over the long-term — none more-so than its forecast 5.8% fully franked dividend.
Buy, Hold or Sell
I'd buy each of these company's at today's prices, but my favourite for new money is probably Retail Food Group. Indeed, if you too believe the market is due for a rebound I think it's about time these three stocks are put on your watchlist.
