Top Dividend Stocks of 2023
10 Fund Managers tell us what proportion of stocks in their portfolio pay consistent dividends. They also let us in on the smaller stocks they own that are most likely to increase dividends in 2023.
Currently 5/10 of our top positions pay high, fully franked, dividends. Of these stocks, coal producer Terracom (TER) is likely the highest yielding stock with a 10 cent quarterly dividend at current prices – equating to a 40% grossed up yield. The stocks paying the largest fully franked dividend yields at the moment are Energy and Resource companies.
We believe AMP Limited (AMP) at some point in the next 12-18 months may become a dividend payer. There has been a significant divestment program underway, and this will result in over $2bn in surplus capital and a core business that could generate over $200m per annum in free cash flow. The company has announced a capital return of over $1bn, with the first $300m nearly completed through an on-market buyback. The remainder of the $2bn of excess liquidity could be returned through a combination of a buyback and capital return. It will mainly depend on where the stock is trading in relation to its Net Tangible Asset Backing. However, moving forward post the capital return, we believe this stock could become a healthy dividend payer, in line with other ASX listed financials.
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Over 60% of the portfolio has been paying regular dividends on a historical basis, however this steps up to over 75% of the portfolio as we look forward. Examples of stocks within the portfolio that are either likely to start paying a regular dividend or will increase their dividends are: Webjet (WEB), AMP Ltd (AMP), EVT Ltd (EVT), SkyCity Entertainment (SKC), Tourism Holdings (THL) and Boral (BLD).
Most of the stocks we own are profitable and do pay some form of dividend. Interestingly many companies this year have decided to also implement a stock buy-back as a form of capital management. This is driven by lower share prices and better returns from the buy-backs. We would expect PSC Insurance (PSI) and SRG Global (SRG) to both increase their dividends in 2023.
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Dividends are not a huge focus for us. All else equal we’d prefer our companies to retain their earnings and reinvest at high rates should they have the opportunity to do so. Our belief is that the best performing companies through time are those with high earnings growth not the highest payout ratios. Having said this, Dicker Data (DDR) is an example of a company that has consistently grown its dividend and currently yields 5% fully franked.
About half. Karoon Energy (KAR) is a good chance to become dividend paying.
The fund is attracted to high cash generating businesses and therefore a considerable proportion of companies we own pay consistent dividends. Currently over 70% of our holdings pay regular dividends.
We own two companies that are likely to continue to offer great income flow to their shareholders: building materials company Big River (BRI) has been growing massively through acquisition and organic growth buoyed by the huge run in building material demand and prices. BRI is currently on a yield of ~7.5%. Silk Logistic (SLH) offers logistics service from ports to the end customer (think warehousing, transport and distribution) and, like BRI, is experiencing increase in demand both internally and via acquisition. SLH has paid about 4% in dividends in the past year.
About 40% of stocks we own pay dividends. We are supportive of our small company holdings paying dividends to shareholders as 1) it provides credibility to the investment thesis, 2) paying dividends encourages financial discipline from management & 3) dividend paying stocks generally attract a wider investor base. Prime Financial Group (PFG) has recently confirmed a forecast 30% increase in its full year dividend for 2023, placing PFG on a 7% dividend yield. Other portfolio holdings on strong (7%+) yields include Shriro (SHM), EarlyPay (EPY) and DDH1 (DDH). Among other dividend payers, we are looking for strong increases in dividends in 2023 from Kip McGrath (KME) and Laserbond (LBL).
We are mainly global investors so not many. But two of our Australian positions – Dexus Property Group (DXS) and Deterra Royalties (DRR) are in that category, plus our US financial market exposures which are significant.
If you are interested in learning more about the Blue Chip Stocks and how to invest in this area read more here.
Over half the stocks in the Under the Radar Report portfolio pay dividends, and we think that about half those would be in a position to increase their dividends during 2023.
Our dividend portfolios have performed very well and are worth checking out – Issues 504/505 June/July 2022. Our latest portfolio had an average yield of close to 7% and included one of our long-term favourites, the aluminium products manufacturer Capral (CAA) as well as the shade cloth manufacturer Gale Pacific (GAP). These aren’t the sexiest stocks, but they do the job for dividends. Others include HT&E (HT1) and GR Engineering (GNG) which are also worth checking out.
“ Currently 5/10 of our top positions pay high, fully franked, dividends. Of these stocks, coal producer Terracom (TER) is likely the highest yielding stock with a 10 cent quarterly dividend at current prices – equating to a 40% grossed up yield.” KARL SIEGLING
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