There are plenty of things for investors to worry about at present. The interest rate outlook still isn’t entirely clear. It seems likely that rates may have peaked in Australia and possibly the US, but perhaps not Europe. High oil and energy prices are helping keep inflation elevated.
The outbreak of terrorism and violence in the Middle East is horrible to see. The Ukraine War continues. It is easy to become alarmed considering all the negative possibilities. Hopefully level heads will prevail and the conflicts can be contained.
If so, this may prove to be a good buying opportunity for investors. Share prices have weakened in September and October and many stocks appear good value. If we wait until everything looks rosey the share prices will already have risen.
Bank deposits offer five per cent interest or better. That’s appealing, but it is taxable. It provides a good hurdle to help identify high yielding stocks.
Share dividend yields are now higher. Company profits and dividends paid have held up while share prices haven’t. Companies that research firm Lonsec expects to pay more than five per cent income include ANZ Bank, Transurban, Amcor, Ampol, Graincorp, APA Group, Aurizon, Metcash and Orora.
These shares also have growth potential as Lonsec rates them undervalued. Miners like BHP and Rio Tinto should also pay healthy dividends though they will vary due to variable commodity prices. The incomes most of these companies pay carry substantial tax credits.
Many property trusts pay even higher incomes, though with smaller tax advantages. Prices have fallen due to fear of a recession and spending slump at shopping centres, and fear of empty offices due to working from home. Shopping centre business hasn’t slowed but office vacancies have increased.
The Property Council of Australia says 12.8 per cent of CBD offices are currently vacant, up slightly over the last half year. Building owners and tenants are modifying spaces to make them more appealing and help entice workers back in.
Importantly, most continuing leases say rents must rise with inflation, meaning big increases, good news for investors. High income payers include Scentre Group, GPT, Vicinity Centres, Charter Hall Retail and Cromwell with some likely to distribute eight per cent or more.
All these stocks pay more than bank interest, many with large tax benefits. Let’s hope the military conflict in the Middle East calms. If it does, and once interest rates are seen to have peaked, share prices are likely to rebound. Next year should see good performances from shares, super and funds.