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Building Recession Proof Portfolio? Zoom Your Lens On These Dividend Stocks

Summary

  • High-quality dividend stocks can help investors find solace in market volatility.
  • Dividend yield can be used as an indicator to identify high-grade dividend stocks.
  • Three NZX-listed high-yield dividend stars include South Port New Zealand Limited (NZX:SPN), Freightways Limited (NZX:FRE) and Property for Industry Limited (NZX:PFI).
  • Besides high dividend yields, investors may consider other factors to make rational investment decisions, such as robust fundamentals, sound balance sheets and positive operating cash flows.

With its unanticipated occurrence and ensuing damage on the economies and financial markets, coronavirus pandemic has kept the globe in limbo. While New Zealand stands out in controlling the spread of the dreadful virus, fears are looming over virus-induced recession in the nation post its biggest quarterly GDP contraction in March 2020 quarter, since 1991.

This calls for a step-up game by market participants in the capital market to strengthen their virus-proof portfolio.

Strategic Portfolio Building Amidst Recession Fears

With economists foreseeing a short and sharp coronavirus-driven recession for the NZ economy, investors can brace themselves up to revamp their investment portfolio with attractive stocks of fundamentally sound companies trading at reasonable prices. While investing in a recession seems crazy, it can potentially yield some of the best opportunities for investors to build wealth in the capital market.

However, investors need to be ultra-cautious while beefing up their portfolio in market downturns, by utilising tips and strategies that can deliver profits under varied market conditions. One such popular investment strategy is to add high-grade dividend stocks in your portfolio nest.

Dividend Stars under the Scanner

High-quality dividend stocks are usually considered as an ideal spot to find solace in market volatility, potentially offering an extra layer of protection to stock portfolio.

In addition to offering a cushion to investors’ losses during market downturn, high-grade dividend stocks allow investors to harness the benefit of both stable income and share price appreciation when the market rebounds. Owing to this attribute, such stocks can also empower investors to outperform the market over the long run.

To identify dividend stars, investors often use dividend yield as an indicator that reveals the amount of dividend income one will receive in comparison to the prevailing stock price.

Having said that, let us quickly gaze through three NZX-listed high-yield dividend-paying stocks that hold considerable potential to wade through the coronavirus-induced recession:

South Port New Zealand Limited (NZX:SPN)

NZ’s southernmost commercial deep water port, South Port New Zealand Limited’s (NZX:SPN) gross dividend yield stood at 6.23 per cent as on 17 th July 2020. In February this year, the Company declared a fully imputed interim dividend of 7.50 cents per share, as paid on 4 th March 2020.

While South Port is no exception in bearing the brunt of lockdown restrictions imposed in Kiwi Land, it has been experiencing a robust uplift in log volumes exported through the port since the lifting of curbs. South Port experienced a higher-than-expected trade activity late in FY20, which it anticipates delivering a much-improved full-year profit compared to earlier expectations.

The Company projects its net profit after tax (NPAT) for FY20 to be in excess of NZD 8.7 million, as against its previous expectation of full-year earnings to remain at lower end of the NZD 8.2 million to NZD 8.7 million profit range.

However, South Port expects the closure of NZAS Tiwai Point Aluminium Smelter in August 2021 to deliver a heavy blow to the regional economy.

Freightways Limited (NZX:FRE)

Express package service provider, Freightways Limited’s (NZX:FRE) gross dividend yield stood at 5.96 per cent as on 17 th July 2020.

Freightways revealed an interim dividend of 15 cents per share for the year ended 30 th June 2020, in February this year. Payable on 1 st April 2020, the dividend was fully imputed at a tax rate of 28 per cent, representing a payout of about NZD 23.3 million.

While Freightways’ revenue plunged on an average of about 32 per cent during April amid lockdown, it has observed a steady improvement in its activity afterwards, backed by an increase in the share of its business deliveries.

Following the completion of Big Chill acquisition in April this year, Freightways looks forward to developing a new strategic vertical for its business with ample liquidity for the foreseeable future.

Property for Industry Limited (NZX:PFI)

NZ property company that invests in industrial properties, Property for Industry Limited’s (NZX:PFI) gross dividend yield stood at 4.14 per cent as on 17 th July 2020.

PFI declared a cash dividend of 1.80 cents per share for March quarter in May this year, in line with the dividend paid in the prior corresponding period. It also announced a dividend reinvestment scheme operating for this dividend with a discount of 2 per cent.

PFI has been closely working with its tenants to gauge the impact of coronavirus on their operations. It has also agreed on a range of solutions with a small number of tenants to share the impact between the tenant and the Company. Despite coronavirus-driven uncertainty, PFI seems to be well-positioned to continue to take advantage of the current low interest rate environment.

While these companies carry high dividend yields, investors may consider other factors in order to make rational investment decision, such as robust fundamentals, sound balance sheets and positive operating cash flows. Besides, brushing off noise while securing a bird’s eye perspective on profitable investment themes seem to be crucial for investors to escape making wrong calls.

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