Canny investors target yields


The start of the new financial year began relatively positive, but soon weakened as a continuation of the negative themes marking the past six months took hold.

The 'big money' doesn't seem to be betting on a strong global economic recovery anytime soon either.

Historically low bond yields, BHP shares just above three-year lows and outperforming defensive sectors - all reflect market concerns and show that deflation is being viewed as a real threat.

This makes sense to us, as the 30 year global credit boom of unprecedented proportions will take many years to unwind and cannot be solved with a wave of a wand.

Speaking of wand waving, the latest European Union (EU) deal may provide share markets with a temporary reprieve but it does nothing to solve the region's biggest problem of high debt levels.

While details of the deal are still sketchy, it appears all this agreement does is provide banks with more debt for a while longer, failing to address the underlying Eurozone growth issues, nor the structural competiveness problems which are inherent in the common currency system.

So, while share markets may have been in celebration mode early this week as the immediate threat of a financial system 'blow up' appeared to have passed, we need to be mindful that nothing has really changed and Europe is by no means out of the woods.

Investing in this environment is very difficult. However there are many opportunities that arise in a market that has been pushed down below fundamental values.

If your investment strategy is to target yield, the recent activity of the third player in the supermarket industry, Metcash (MTS) is a good example.

In the past week the stock has reported financial results, raised capital and paid a 16.5c dividend.

The report on MTS noted that profit lifted 2.4 per cent to $263 million, while net profit was down 63 per cent to $90 million, which was basically the cost of the Franklins takeover and some other one-offs.

The capital raised included a $325 million institutional share placement and $50 million share purchase plan, with most of that money to be used to buy after-market car parts distributor, Automotive Brands.

This has left the stock trading at seven year lows, closing on Friday at $3.19. If the stock continues to pay a yearly dividend of 27.5 cents at $3.19, the yield is 8.6 per cent fully franked.

There are numerous other high quality Australian shares paying excellent dividends at the moment. So even in the doom and gloom of the global markets, there are still opportunities to maximum income on your investments if you look carefully.


_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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