FYI | Jul 23 2012
By Peter Switzer, Switzer Super Report
Months ago when stocks stunk to the noses of normal people, my co-founder of the Switzer Super Report, Hall of Fame stockbroker and the founding boss of a ‘pretty’ successful business called CommSec (please note the intentional understatement) Paul Rickard put together a portfolio of good dividend-paying stocks.
Anyone who has followed my columns in this Report or happens to be a client of Switzer Financial Planning knows I like great companies that pay good dividends, which I want to hold for a long time.
I don’t want to be influenced by the short-termers (traders, stockbrokers, media mouths and many normal investors) who are like punters at the racetrack, always trying to be on a winner in every race.
Sure, if you can get it right in the short to medium term, if you can use the trend as your friend and make smart decisions like professional fund managers, then you might do okay but history has shown that one-third of active fund managers are lucky to beat the index!
Right now, people — and its often brokers or media experts who have been influenced by brokers — say you can’t hold a stock for a long time. I disagree and so it was heartening when an award-winning fund’s managing director told me that his fund can hold for 10 years and even longer.
Tim Samway of Hyperion Asset Management said that they look for companies that will pay dividends in the future, not just now.
They want companies with “strong organic growth paths”, high return on capital, low capital intensity and importantly — low debt!
So what kinds of companies is he talking about? Well, as Tim ran through these company qualities with me, I asked: “What companies?” And then he and I in sync both suggested Seek. He then threw in REA, Carsales, Wotif, etc.
“They’re great businesses, their dividends are growing strongly, their earnings per share growth is up there in the 20s and above, they’re the businesses that will keep spinning off dividends for many years to come,” he explained.
These companies have eaten into the business of traditional print media and Samway sees this continuing.
I made the point that these companies are takeover targets as well, and he agreed, but he doesn’t want that to happen.
“If the prices stay low [they’re targets] and that’s our fear that a company like that gets taken out at a 20 per cent premium, where we think we can make three times that money by holding it for five years.”
Companies such as Hyperion have a team of analysts that keep watching a company. They get to know what makes it tick and effectively they understand the business. They’re a great lesson to SMSF trustees who are in charge of their investment decisions.
In market boom times there will be others who will shoot the lights out but for most investors, and especially SMSF trustees, the solid and steady approach looks like the right game plan.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
