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Archive for September, 2018

28 September
Comments Off on Rising telco shows signs of sustaining growth

Rising telco shows signs of sustaining growth

Telstra has gained lots of attention in recent times returning 52.5 per cent in the past year as buyers hungry for yield in a falling interest rate environment drive the share price up. The recent rate cut may underpin further gains as it is still paying a 5.5 per cent dividend yield fully franked.Under the Radar: Second-tier telcos are the ones to watch
Nanjing Night Net

But canny investors have found other options in the telco market. One is M2 Telecommunications, which has returned shareholders 84.3 per cent in the past year and 59.6 per cent annually for three years. Recent performance been driven by a share price that has risen from $2.93 last July to more than $6.00.

Despite the run-up, yield remains relatively attractive at 3 per cent following a lift in the dividend announced with the results for the December half. That incidentally saw pre-tax profits up 47 per cent to $34.9 million. Current market capitalisation is about $1 billion.

The question investors need to answer after a run-up like that, is can the price growth be sustained? This week’s charts, produced by Robert Brain, a director of the Australian Technical Analysts Association, gives us a few different ways to look at that question.

The first chart is the basic share price, the second measures M2’s price progression on a logarithmic rather than a linear scale. The effect of this is to show the percentage progression rather than the simple price rise, enabling an easier view of the stock’s relative price performance.

”Had we used the linear price chart, the run-up since February 2013 would look way overdone,” Brain says. Using the logarithmic scale, he has drawn two green uptrend lines, one from August 2010 to March 2011 and the other from February 2013 to the present. Given the lines are roughly parallel the strength of the current uptrend can be said to be about the same as the previous one. That implies the current rally is not too strong to continue and the price may not be overdone.

The third chart shows the momentum chart indicator and its moving average (the blue line), with the momentum indicator being the change in the share price over a given time interval, in this example 28 days.

Both the indicator and its moving average have trended up since March, another positive sign.However the bottom chart shows weekly traded volumes in the stock and its five-week moving average have fallen since mid-March. That is a bearish signal that implies investor demand could be waning. Given the conflicting evidence from the charts, investors seeking to buy should protect their positions with stop losses.

On the fundamental side, M2 is expanding through acquisition.

It recently completed the takeovers of telco groups Dodo for $158 million in cash and 10.47 million M2 shares and Eftel for about 8.25 million shares and a small cash component.

The acquisitions will build its consumer division and are expected to boost earnings by more than $50 million next year.

The Dodo purchase puts M2 into the energy retailing and insurance businesses and both purchases are expected to boost earnings per share by 20 per cent next year.

They will add to the existing brand portfolio of iPrimus and Commander.

This column is not investment advice. [email protected]南京夜网

M2 Telecommunciations (ASX: MTU)

This story Administrator ready to work first appeared on Nanjing Night Net.

28 September
Comments Off on More dividends not something to bank on

More dividends not something to bank on

A big reason bank stocks have been such a smash hit with investors this year is their great dividends.
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Why settle for returns of about 4 per cent on a one-year term deposit, the argument goes, when you can get a more tax-effective return well above 5 per cent from bank shares?

It’s a fair point. But before getting swept up in the search for yield, you should be aware that bank dividends are unlikely to grow as quickly as they have in the past.

The latest set of profit results further underlined the capacity for banks to pay shareholders a healthy income stream.

NAB raised its dividend by 3 per cent, ANZ smashed expectations with an increase of 11 per cent and Westpac chipped in with a one-off special dividend.

However, analysts argue the spectacular growth in payouts enjoyed by ANZ and Westpac shareholders is unlikely to continue in the long term.

The most important reason for this is the ”payout ratio” – a number that has become much more interesting to yield-obsessed investors lately.

Put simply, bank dividends have been super-sized in recent years by banks paying out a higher share of profits.

As the graph shows, the share of profits being paid out by the big four – known as the payout ratio – has risen from about 65 per cent a decade ago to 72.5 per cent now.

But it is unlikely to rise much further.

For one, Commonwealth Bank, NAB and Westpac have already raised their payout ratio to 75 per cent. This is far more than banks overseas pay out as profits and it’s hard to see boards approving payout ratios getting much higher.

This is because companies generally hate cutting their payout ratios during bad times, which annoys shareholders. To avoid this, they take a conservative approach.

If banks do build up extra capital in years ahead, experts reckon they are more likely to give it back to shareholders as special dividends, rather than increasing payout ratios further.

ANZ might still increase its dividend payout ratio a bit more. It has been paying out a smaller share of profits than its rivals because it’s using its spare cash to invest in Asian expansion, and its latest move was an attempt to narrow this gap. However, it also said it did not plan to increase its payout ratio all the to way 75 per cent.

All up, more gradual growth in bank dividends looks most likely.

Of course, the absolute cash value of these payments might keep rising as bigger profits roll in. But they are unlikely to be turbo-charged by boards giving back a larger slice of the profits.

This story Administrator ready to work first appeared on Nanjing Night Net.

28 September
Comments Off on How does your fund stack up?

How does your fund stack up?

Super-fund members could be forgiven for thinking that all superannuation funds are the same. That’s because super is talked about as if it is an investment in its own right, like shares or fixed interest, rather than just a tax structure. It is this thinking that masks big differences in the returns of funds.
Nanjing Night Net

When talking about performance, it’s the return of the typical, or median-performing ”balanced” investment option that gets quoted in the media. But super funds have at least a dozen investment options. Some invest in only one asset class, such as Australian shares. Others spread the money among various asset classes.

Most people are in their fund’s ”balanced” option, which is designed to have an asset allocation that suits the majority of the fund’s members. This type of investment option is usually the one an employer will have for its new employees who don’t choose who manages their super.

But data from SuperRatings shows a 4 percentage point returns gap between the best- and worst-performing balanced investment options over the past 10 years. Because of compounding, over the 10 years, the best-performing balanced option would have an account balance almost 50 per cent higher than the worst performer.

This underlines the importance of taking an interest in your super and checking on how your investment option compares with the balanced options of other funds.

The two biggest reasons for differences in performance are asset allocation (how much is invested in shares, property and so on) and fees – the lower the fees the better.

”While we do not subscribe to the view that members should be aiming to pick ‘winners’, we do believe that members should have regard for the longer-term performance of their option against the index [median return],” says Kirby Rappell, the research manager at SuperRatings.

The good news is, fees are coming down. And that means the spread between the returns is becoming smaller. Although, some funds still have fees as high as 2.5 per cent when the average is 1.4 per cent.

The performance of an investment option cannot be judged on the basis of one-year returns. Investment markets go through cycles and because options have differing exposures to investment markets, they perform differently at different times in the cycle. However, alarm bells should ring if your investment option underperforms compared with similar investment options over periods of at least five or seven years. Comparison is easy. Your fund will provide long-term returns on its website.

Returns can also be compared over the same time frame with the median given by SuperRatings at superratings南京夜网.au.

While performance is important when choosing a fund, it’s not the only consideration. Be aware that most superannuation funds have automatic acceptance for life insurance up to certain amounts of cover. But some funds require a medical examination, or that a questionnaire be filled out, before accepting the member for total and permanent disability insurance. Some funds may have automatic acceptance but a lower level of cover than your existing fund.

Range of 10-year returns

This story Administrator ready to work first appeared on Nanjing Night Net.

28 September
Comments Off on Grow a surplus of your own

Grow a surplus of your own

The only way to get off the treadmill of living from one pay packet to the next is to commit to a household budget.Case study: Thrift and vigilance keep family on track
Nanjing Night Net

Financial experts agree: tracking your outgoings will highlight unnecessary spending and help you stash some extra cash.

Olivia Maragna is the co-founder of financial services firm Aspire Retire. She was recently named financial adviser of the year by the Association of Financial Advisors, and says overspending is common in Australia.

”It’s worth remembering that every year in Australia, we spend billions of dollars on food that we don’t eat, clothes we never wear, and services we don’t use,” she says. ”So for many people, gaining control over spending doesn’t mean doing without, it just means being sensible about spending.”

Maragna says people fall down because they’ve never been shown how to manage money. Successful people set financial goals and have a plan to achieve them, she says.

”The plan might not be foolproof, but successful people adapt the plan as they go along to give themselves the best chance of succeeding.” 

Five ways to get ahead financiallySpend less than you earnDrive down debts as quickly as possible Save regularly Invest in assets that will produce tax-effective income as well as growth Borrow money to boost your investments

Financial goal-setting is particularly challenging for the younger generation, according to Alison Gallagher, co-ordinator of financial literacy program Regret Nothing, which is part of Encompass Credit Union Limited.

”Once you finally leave university and start working full-time, suddenly having a full-time wage can result in some unbridled spending enthusiasm, which is fair enough – finally you have some extra money to go and enjoy life. But once the novelty of earning real money wears off, the key is to set some savings goals and work out a budget,” she says.

Deciding what you hope to achieve with your savings goal is a great idea.

”A holiday in Europe, a new car or saving for a house deposit are all emotionally charged goals, with easy-to-visualise results and something tangible you can work towards, which will always be more achievable than a number,” Gallagher says.

Louise Brogan has seen the consequences that not budgeting can have long term. The founder of money-management consultancy All Money Matters says people usually call for advice when they’re no longer able to afford the necessities.

”I’d prefer to be seeing people before they get to that desperation point to help them understand how money works and what their own needs are,” Brogan says.

And while there are hundreds of organisations offering financial advice, think carefully about who you take money advice from, she says. ”Some banks have programs to help with money, but many have vested interests that pull you towards their own products, which might not necessarily be right for your situation.”

Creating a budget doesn’t have to be complicated. For one month, write down every purchase you make – from train tickets, chocolate bars, bottles of water and movie tickets to bills, rent and credit-card payments. Tally up your weekly expenditure to see which purchases could be curbed.

”Having a strategy to pay off your mortgage sooner is always a winner as it will reduce your overall interest expenses. Putting your tax refund into your mortgage is a nice little booster, but aim to add an extra 5 per cent on top of that,” Gallagher says.

Split spending into categories based on necessity. Things like mortgage repayments, utilities and essential food go into the ”must spend” group. Some things will be ”optional but important” and others will fit into the ”frivolous” category.

Track your spending

There are countless cash-tracking apps on the market, although a simple Excel spreadsheet can work just as well to categorise and track spending. Various bank websites also offer free money-tracking tools that are ideal for creating a household budget, as does the Australian Securities and Investments Commission site.

Another great way to save is to set up an automatic direct debit from your main source of income to go into an online savings account, Gallagher says. ”You’d be surprised at how much you can save each week by cutting down on the daily takeaway coffee, snacks and bought lunches, takeaway food and impulse clothing purchases,” she says.

Craig Wilford is a partner of the financial planning division of chartered accountancy firm Nexia Australia. He recommends households sit down together (or with their financial advisor) and work through their income capacity and look at objectives for now and into the future.

”By agreeing on aspirational goals, such as lifestyle, retirement, education, philanthropy, family and others, the family can determine how well they can achieve those goals based on their current and expected incomes.”

But the real discipline of budgeting is reconciling any gaps between income and asset levels against expenditure goals, Wilford adds.

His top tip is to make sure budgeting is a continuing process, not a one-off job. ”The key to budgetary success is monitoring progress towards goals and ensuring the agreed actions are taking place. Without this, most people fall back into the trap of ‘too much month at the end of the money’,” Wilford says.

A period of non-spending

Take time to examine where your money goes and where it could be better spent by consciously deciding not to buy anything new for a month.

This October is Buy Nothing New Month, which reflects a growing global movement towards reassessing how and what you buy. Apart from saving and not accumulating excess stuff, buying nothing new for a month can help you cut back on things you don’t need.

Buy Nothing New Month encourages Australians to consider ways to extend the life of existing goods and maximise the value of existing stuff, while promoting recycled, free-cycled, up-cycled, second-hand and sustainable alternatives to buying new that are better for your wallet and the planet.

This story Administrator ready to work first appeared on Nanjing Night Net.

28 September
Comments Off on Beware pitfalls of investing for a newborn

Beware pitfalls of investing for a newborn

Baby bonds Photo: Michael MucciQ I want to purchase shares in an ASX index fund to be held in trust for my newborn daughter. The intent is that over time I will buy additional units, and the dividends would be reinvested to purchase additional units in the fund. I understand that as the trustee I need to provide my tax file number to the index fund provider. Does this mean the dividends would count towards my personal income and be taxed at my marginal tax rate of 45 per cent? If so, how can I establish the trust to purchase the index fund units for my daughter, while maximising capital growth through dividend tax minimisation?
Nanjing Night Net

A If you are holding the investment as a trustee, you will be taxed as trustee at the same punitive rate that applies to people under 18. This means once income exceeds $416 a year, the tax will be at the highest marginal rate. A better option would be to place the money in an investment bond whose main asset is the index. Because the bond fund pays tax at 30 per cent on your behalf, there would be no further tax to pay each year. A large benefit is that the bond can be transferred to your daughter at any stage capital gains tax-free.

Q I have spoken to an accountant who says super is the best way to minimise tax and prepare for retirement, however, it seems that the laws are going to change. What else do you recommend that would give me the ability to make deductions and put money into super?

A The government has announced some changes to super but it is unlikely they will be legislated before the election in September, and if the Coalition wins government the changes might not happen. There is no doubt the rules regarding super will keep changing but the older you are, the less likely they are to affect you. Therefore your age should be a major factor in your decision to use it or not. No other investment vehicle gives you the ability to make contributions from pre-tax dollars and to hold money in an environment where income tax is just 15 per cent. If you are young, a better strategy might be to borrow for investment. Your adviser should be able to tell you about the advantages and disadvantages of the available options.

Q I have recently retired and my husband and I have applied for the age pension. My husband is 73 and I am 69. We are selling our investment property and would like your advice on the best thing to do with the profit to minimise changes to our pension. Should we invest in super or a fixed-term deposit?

A As you are older than 65, you are not eligible to contribute to superannuation unless you can pass the work test, which involves working 40 hours in 30 consecutive days in the financial year you make the contribution. This is usually not a very difficult goal to achieve. The benefit of being able to contribute to super would be that you might be able to make a tax deduction of up to $25,000 each, which could reduce any capital gains tax payable on the sale of the property. The attractiveness of super versus a term deposit will depend on your overall assets, tax position, what you believe your life expectancy will be and your attitude to risk. As you are making an application for the pension later than the qualifying age, be sure to explore the Pension Bonus Scheme as you might have some due entitlements.

Q My mother has $100,000 in savings. She wishes to put it into my home loan offset account for a year as she is working part-time and has to pay tax on any interest earned. Would this have any tax implications on us? Do we need to notify the ATO?

A It would have no tax implications for your mother, as people are free to make interest-free loans to other people if they wish. It would be a different matter if she is receiving Centrelink benefits because it would then be treated as a deprived asset. There is no need to notify the ATO.

Q I have two rental properties and am considering selling the older one, which is 21 years old – I’ve had it for nine years. I am concerned if I sell it the profit or capital gains tax will be added to the child support I pay as income. Do you know if this is correct? I purchased the property for $226,000 and now it is worth about $300,000.

A Your income for child-support purposes includes taxable income. If you sold a property and made a taxable capital gain, the amount of that gain, less adjustments such as the 50 per cent discount, would be added to your taxable income and would increase that income for child-support purposes. Just keep in mind it might not be a huge amount when buying and selling expenses, plus the discount, are deducted.

This story Administrator ready to work first appeared on Nanjing Night Net.