I buy dividend stocks using my Metric of Six system. A stock should return about 6 percent p.a. to add value to the buyer. You can get 3 percent in the bank with no risk, but inflation is over two percent! Imputation pushes it up another couple of percent, so hey presto, your getting in front of Aunty Jack at the ATO with a total of about 8 percent all up. Telstra, AMP and all the banks etc. return this metric and are at fair value in a risk v reward scenario; higher reward - 8 percent, but stock price could drop, verses 3 percent - poor reward but no risk of capital loss at the bank. Take ANZ - $2 p.a. Dividend @ $30 stock price. 2 divided by 30 equals 6.6 percent unfranked, a good return. So now a poor example, CSL, going gang busters last couple of days and now $113 on $1.80 dividend after profit upgrade. Thus 1.8 divided by $113 equals 1.59 percent - half what you would get in a bank. So CSL is Fifty bucks overweight, great buying NOT. It's trading on its good looks, so good luck with that. Its gonna wanna be a massive shift in profits to make the metric!
Now we come to SPO - panic oversold on a profit downgrade. $3 billion turn over, 36000 workforce, self diversifying by being hundreds of different contracts all over the country and NZ. The private equity mob long gone, and new buys that will accrete earnings from this year on. Even before the new buys, earnings before impairments were near $150 mil, and the metric was .11 cents, divided by, my buy in at .95 equals, 11.57 percent unfranked. That is just the start, I expect .14 cents div total this year. So I ask you, is there a more undervalued stock on the ASX at the mo? If these people run the company as I believe they will, I expect share price to be $1.25 after interim announcement (look for btwn 5 and 7 cents). Then $2 price by end 2017 and if the divs continue to rise with the competent management I see blending now, then I expect a dollar a year to be added to the stock price for the next eight years. Bold statement you think. The metrics don't lie. Look at the big four banks, all trading on 5 to 7 metrics constantly. I got a strong position in this one and expect it to do some heavy lifting for my retirement, so Martin Shepperd, "Go you good thing." Best wishes to all...
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