Why is SP retreating ?, page-25

Article in The Weekend Australian 2nd. Feb. - Paste n copy -

SMALL CAPS PAYING BIG DIVIDENDS

Dividends really do reduce a portfolio’s volatility.Day-to-day gyrations don’t matter if you are receiving a half-way decent interim and full-year dividend. Watch the company, don’t watch the market.Across the market the average forecast dividend yield is 5.1 per cent (excluding franking), which is double the average for the US market, which is closer to 2.5 per cent on the S&P 500 index.

In fact, the sell-off in the fourth quarter of 2018 was much more aggressive in the US market, where the S&P 500 fell 14 per cent, compared with the ASX All Ordinaries index decline of 9.7 per cent.When you look at the paltry 2.4 per cent rate of return you get on a 12-month fixed-term deposit, it’s no wonder Australian investors look to equities for income.In the past we have had blue chips that paid too much. Telstra is a classic example. The company paid out more dividends than its cash flow warranted, failing to invest in growth and to take into account the competition arising from the NBN. All the while it was eroding its balance sheet strength. Then the crunch came when the company could not maintain its fiction that profit margins were being sustained and it was forced to reduce its dividend payout.

Which brings us to small caps. These companies generally have higher risk than their bigger counterparts but, because the universe on the ASX is diverse, I have had no trouble finding three stocks that I am willing to nominate: My State I like both the regional banks we cover, but the Tasmanian-based My State is probably a safer bet because of rival Auswide Bank’s concentrated Queensland exposure. The company has proved to be a steady performer and provides ballast in the volatile small-cap world through the provision of modestly growing fully franked dividends supported by its strong capital position and pristine asset quality. At current levels, $4.70 the company trades on a fully franked dividend yield of more than 6 per cent.

Above article simply reverberates thoughts of current follows / holders of this little followed gem. As I have said before in my posts "nice earner with great yield" grossed up circa  8.74% at  closing price of $4.70. (If you can buy in at $4.53 on Monday you will be competing with my add more order)