According to Fairfax media reports this morning, Macquarie Group Ltd (ASX: MQG) has cut their forecast of two RBA rate hikes in 2018. Macquarie now expect the RBA to lift rates in early 2019. This is because unemployment remains too high while wage and inflation growth has been subdued and so the RBA will likely be a bit more cautious and wait a little bit longer before it lifts rates.
Macquarie estimate that the market is fully pricing in a rate hike by May 2019 and a 75% – 80% chance of a rate hike by February 2019.
I think this will come as good news not only to households with mortgages but also investors in stocks that are 'yield plays' with limited opportunities for capital growth. Companies such as Telstra Corporation Ltd (ASX: TLS), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) come to mind. These companies have bond-like qualities that make them very attractive when interest rates are low.
Having said that, it's not a good investment strategy to pick stocks purely based on what you expect the RBA to do. I prefer to focus on the fundamentals of the underlying business.
One company that I would pick for a long term focused dividend portfolio is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). It has significant holdings in companies such as TPG Telecom Ltd (ASX: TPM), New Hope Corporation Limited (ASX: NHC), Brickworks Limited (ASX: BKW) and Australian Pharmaceutical Industries Ltd (ASX: API).
It's management team has a good long-term track record and I think it will do well over time as the Australian economy performs well.
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