Dividend cuts are a hot topic for income investors. The team at Plato Investment Management expect ASX 200 payouts to fall 30% on aggregate this year.

While some big payers have cut or deferred payments, not all companies are giving shareholders grief. In this episode, Dr Don Hamson of Plato and Chris Hall from Ellerston Capital discuss 5 ASX big-caps with strong balance sheets that can be relied on for yield.

They include: 1) A finance company with a defensive earnings profile; 2) Australia’s best-capitalised major bank; 3) A conglomerate benefiting from lockdowns, 4) An A-REIT in the right part of the property market, and 5) A mining stock with a growing cash pile.

Notes: Watch, read or listen to the discussion below. This episode was filmed on 20 May 2020. 

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Edited Transcript

Jessica Amir: Welcome to Buy, Hold, Sell, brought to you by Livewire Markets. I'm Jessica Amir from Bell Direct. Today, we're talking five strong-as-an-ox companies with reliable dividends. With me is Don Hamson from Plato Investment Management and Chris Hall from Ellerston Capital. Gents, thanks for coming along. First up, let's start with you, Chris. ASX, buy hold, or sell?

ASX Ltd. (ASX:ASX)

Chris Hall (Hold): Hold for me, Jess. Great company. Obviously very, very conservative balance sheet. It's net cash. It's got a very, very defensive earning stream, but valuation is pretty steep. It's trading on 30 times. It's at about a 15 to 20% premium to your other global exchanges around the world.

Jessica Amir: Thanks Chris. Trading volumes are at an all-time high. Don, ASX buy, hold, or sell?

Don Hamson (Sell): Sell for us. Yes, volume's at a high, but I think that can only go down. And I agree with Chris. Valuation is very expensive. So I think with limited growth and a high valuation, it's a sell for me.

Macquarie Group (ASX:MQG)

Jessica Amir: Let's stay on you, Don. Macquarie, MQG, buy hold, or sell?

Don Hamson (Buy): That's a buy. Great capital position. They're really smart guys, and they seem to make the best of tough situations like we were in.

Jessica Amir: Tough time for some, but their profit only fell 8%. Macquarie buy hold, or sell Chris?

Chris Hall (Buy): Buy for me, Jess. It's got a very strong surplus capital position. A pure player on infrastructure with its investment portfolio. Market-facing businesses will recover if the markets continue to improve over the next one or two years. The valuation's looking compelling.

Wesfarmers (ASX:WES)

Jessica Amir: Regardless of markets improving, people are still buying at Wesfarmers. Buy, hold, or sell Wesfarmers?

Chris Hall (Sell): Sell, Jess. This one's probably a bit controversial. If I look at Wesfarmers' earnings, 60% of it comes from Bunnings. If I back out the implied valuation of Bunnings, I think it's trading on around about 28 times, which is far superior to that of something like a Woolworths or even at JB Hi-Fi. Great company, but it looks expensive. $7 billion of capital to deploy. That will be the changer if I'm going to change my mind.

Jessica Amir: Wesfarmers, is it expensive? Buy, hold or sell?

Don Hamson (Hold): Hold for us. Yes, it looks a bit on the expensive side, but it's got a very good earnings stream from Bunnings. So we're in a hold on that one.

Fortescue Metals Group (ASX:FMG)

Jessica Amir: And Don, we ask you to bring a strong-as-an-ox company, paying a reliable dividend. What have you got?

Don Hamson (Buy): Bit of left field here, but we got Fortescue Metals. Iron ore prices are higher than at the start of the year. Great dividend yield, and that company has a net cash position. So for us, that's a strong buy.

Goodman Group (ASX:GMG)

Jessica Amir: Chris, what's your stock for today?

Chris Hall (Buy): For me, it's Goodman Group. Again, a great pipeline of business opportunities and a fantastic balance sheet. They have about $5 billion worth of work in the pipeline at the moment. They have $50 billion of assets under management, which they can continue to draw down on fee revenue. I think you will see a 5-7% compound dividend growth story over the next few years.

Jessica Amir: Well, there you have it. Two strong-as-an-ox companies in Fortescue Metals and Goodman Group.

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