A few top dividend stocks

Discussion in 'Stocks & Derivatives' started by finicky, Jul 31, 2014.

  1. finicky

    finicky Well-Known Member Silver Stacker

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    As advised by Motley Fool yesterday
    You'll find higher yields elsewhere, but these have been chosen for likely continued consistency of payment plus prospect of earnings growth (therefore S.P and div growth as well)

    Coca Cola (CCL)
    Collection House (CLH)
    Premier Investments (PMV)
    Integrated Research* (IRI)
    Thorn Group* (TGA)

    * means I hold
     
  2. finicky

    finicky Well-Known Member Silver Stacker

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    Special Report

    The Motley Fool's Top Dividend Stock for 2014-2015

    Dividends can be an investor's best friend. Not only do they provide income, but dividend stocks tend to be more stable and can sometimes deliver capital gains as well.

    Our top dividend stock pick for 2014-2015 boasts an impressive yield as well as a stable business and an attractive valuation - putting this top ASX stock into 'holy grail' territory.


    Thorn Group (TGA)

    Company snapshot (data as of August 11, 2014)

    Thorn Group Limited (ASX: TGA)

    Market cap: $351 million

    Recent share price: $2.33

    Cash/debt: $2.4 million/$40.5 million

    Trailing P/E: 12

    You've probably seen the 'Rent, Try, $1 Buy' ads from Radio Rentals, and Rentlo in South Australia. Our top dividend pick, Thorn Group (ASX: TGA), is the company behind them.

    For many Australians, buying fridges, televisions and washing machines outright is often too expensive or inconvenient - and that's where Thorn comes in. Its business model sees the company rent out products to consumers from its familiar stores, and an in-house financing arm looks after the contracts and collections.

    Breaking down a large purchase into small weekly payments makes the transactions easier for its customers - and vastly more profitable for Thorn. You see, the final price of a television or clothes drier can be considerably higher if the customer pays the weekly rental, providing Thorn with an impressive profit.

    It's true some investors are uncomfortable with the thought that Thorn is profiting from the inability of its customers to pay upfront or their unawareness of the 'short-term gain, long-term pain' structure of the rental agreements, but there's no doubting that the model works.

    Exciting growth initiatives
    Thorn is working hard to capitalise on its market, and the company is diversifying its earnings base to become a broad financial services provider.

    One recent initiative, Thorn Financial Services, comprises Thorn Money, which provides unsecured loans up to $15,000 and secured loans up to $25,000, and Cashfirst, which provides unsecured loans between $2,000 and $5,000. This division is growing strongly, with revenues rising a tidy 18% over the last year.

    Another initiative, Thorn Equipment Finance, provides rental solutions for businesses and government. This division is also growing strongly, with sales climbing 35.7% this financial year.

    Thorn Group's 2011 acquisition, debt manager National Credit Management Limited (NCML), has been slow to deliver the desired outcomes, but the good news is that this unit is slowly turning around. Revenues and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) are now growing, albeit slowly. Still, it's important to note that NCML is a relatively small part of Thorn's business, representing less than 10% of revenue, and around 15% of EBITDA.

    A cheap valuation and favourable share price
    This challenge in the NCML unit is likely why Mr. Market isn't so keen on Thorn Group just now - a happy situation that gives us the opportunity to snap up shares of this high-quality business on the cheap. At present, Thorn Group shares trade for just 11 times forecast 2015 earnings. That's a value price tag, considering the company's strong earnings momentum.

    Risks & when we'd sell
    Of course, investing in Thorn Group isn't without risk. Should the NCML business continue to prove difficult, there's the possibility that it could be a drain on management's time and the company's reported earnings. Yet so far, it appears that the unit is delivering results in the latest full year results, EBITDA was up 4% over the previous year. It may only be a small contribution, but it shows the NCML unit is heading in the right direction.

    Another risk is regulation - there is always the possibility that governments will move to restrict the amount of profit Thorn can earn from its business, especially if those in power believe Thorn is taking unfair advantage of its customer base and/or charging what they see as punitive effective rates of interest.

    Both of these risks are real - but then there are always risks in investing, and today's share price provides more than fair compensation.

    Now about that fat, 7% dividend yield...
    Given this is a dividend report, you'll be pleased to note that Thorn Group's current dividend yield is 4.7%, fully franked, or when grossed up to include franking credits, over 7%.

    While today's payout is substantial, making Thorn Group an excellent income play, the very best part is still to come. We fully expect the payout to grow over time as the business delivers increasing profits.
     
  3. Caput Lupinum

    Caput Lupinum Well-Known Member Silver Stacker

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    Out of that group I only own Collection House which I bought at $1.75 which I have been very happy with. Debt collectors are a pretty resilient. Even during this current market sell off they have been holding their ground. Still plenty of room to grow as well.
     
  4. finicky

    finicky Well-Known Member Silver Stacker

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    Coke's off the list for me. Don't really have a clue what Integrated Research (IRI) is - went by Motley's recco, past earnings record and chart at time - so more of those unlikely. In a good correction I'd definitely go for a few more Thorn Grp (TGA), would take a first bite at Premier Invst (PMV) quite likely, and maybe Collection House (CLH).
     
  5. finicky

    finicky Well-Known Member Silver Stacker

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    Btw - each of the 5 stocks listed in the first post are priced significantly above their intrinsic values based on estimated FY15 earnings (and other measures). So they are not cheap according to stocksinvalue.com.au which is Clime asset Mgt's online valuation 'tool'. This sort of agrees with the view that the popularity of strong yield companies for income has pushed their valuations to extremes. The list will become interesting in a general correction though.
     
  6. finicky

    finicky Well-Known Member Silver Stacker

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    Looking for a thread to post on Thorn Group (TGA), but this will do as also have a comment to make on Premier Investments (PMV)
    No less than 5 notices of different directors buying shares of TGA on market over the last two weeks.
    There was a vote of faith in TGA from the buyers on Fri (feb 20) when there was a deep break of 2.65 support level then a recovery to form a hammer daily candle closing on the high for the day. Volume was high.

    TGA 6 Month Dly
    [imgz=http://forums.silverstackers.com/uploads/1893_tga_feb_23_6_mth_dly.gif][​IMG][/imgz]

    Premier Investments (PMV) just announced interim results which are great in a lifeless discretionary retail sector. Revenue went up 4% on pcp, but profit went up 9%. Margin increased.
    Paying a special dividend on top of the interim dividend. Price is up 10% today.

    All of the recommended 5 stocks have price appreciated in the ~8 months since Motley Fool recommended them as top dividend stocks. Additionally they will pay the dividends promised.
     
  7. Naphthalene Man

    Naphthalene Man Active Member Silver Stacker

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    Has joining the fool been worth it in your experience?
     
  8. finicky

    finicky Well-Known Member Silver Stacker

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    Never regretted paying their modest subscription fee. Do regret not having taken some of their recommendations.
    I like that they look for dividend paying stocks that should grow earnings and can be held for a long term.
    Only prompted to invest in three of their reccos so far: Integrated Research IRI, Webjet WEB - sold, and Bentham IMF, all up + divs.
    Some of their other reccos I have been influenced to hold as I have been in before their reccos. This has had mixed effects (Codan CDA, Thorn Group TGA)
    Definitely a big positive for me when viewing a stock if Motley have a BUY on it.
    Free subscription to their fortnightly newsletter sometimes triggers a special paid subscription offer.
     
  9. finicky

    finicky Well-Known Member Silver Stacker

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    Thorn Group (TGA) has been showing a sprightly chart just lately and Motley Fool likes their full year report published a couple of days ago. MF keeping an eye on TGA's debt level but overall happy, reiterates buy, and points out the current 4.9% ff yield (5.1% gross) even with conservative (52%) payout ratio.

    [imgz=http://forums.silverstackers.com/uploads/1893_tga.gif][​IMG][/imgz]
     
  10. stackingstudious

    stackingstudious New Member

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    Recently, I have gone through few analysis on high dividend paying stocks for this year and I found GlaxoSmithKline and AT&T worth investing. GSK, one of the pharmaceutical giant gives dividend yield around 5.6% annually. Company is also known for it's pipelines for respiratory drugs. Looking at the track record of AT&T, the company has shown quite good growth and is also known for giving out good returns.
     
  11. finicky

    finicky Well-Known Member Silver Stacker

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    Yeah, well like I added a few thousand TGA today @ 1.465, and I regret drawing attention to it at a higher price. Who knows, maybe the government enquiry will strangle the business. Doubt it.
    The chart of daily duration might sort of be steadying at a secondary low here, but the monthly chart is even more uncertain. Never buy into a downtrend they say, but i just did. Pays a 6c div in July, ex date 30/06/16. Buyer beware.
     
  12. Naphthalene Man

    Naphthalene Man Active Member Silver Stacker

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    I recommend buying Roger Montgomery s book Valueable.
    Good reading and explains why sometimes dividends are not always good for a business.
     
  13. Bargain Hunter

    Bargain Hunter Active Member

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    In my opinion Roger Montgomery is a bit of a snake oil salesman type. He should not be taken seriously.
     
  14. Roswell Crash Survivor

    Roswell Crash Survivor Well-Known Member Silver Stacker

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    What do you think of SYD (Sydney Airport)? Yield is not particularly impressive. Picked up a few parcels of it back when SYD was sub-$6.

    Disclosure: I am Long on SYD.
     
  15. Bargain Hunter

    Bargain Hunter Active Member

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    I have not properly looked at Sydney Airports. Its a stapled security (debt plus equity component in one security ) with a very complex and opaque (like almost all things put together by Macquarie) financial and reporting structure. Its not somehting I would bother to look into to be honest, especially at todays prices. The underlying assets are very good though and if I was already familiar with it and already owned the stock and was sitting on a large taxable gain I would not be selling it.
     

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