Buy Hold Sell: 5 defensive dividend stocks

With rates drifting lower again, income investors are under greater pressure to find reliable income and the yield on equities looks more attractive than ever. 

So this week, we ask our panellists for their views on a selection of stocks that pay a reasonable dividend and have a defensive earnings stream to support it. And we venture beyond the traditional big-cap dividend favourites to hunt in new places to find them.  

So tune in as we run our picks past Daniel Moore from Investors Mutual and John Ayoub from Wilson Asset Management, who also each bring along a stock with a decent dividend that they think is worth a closer look. 

Transcript

James Marlay:
Welcome to Buy Hold Sell. Today we're talking about defensive income stocks. I've got John Ayoub from Wilson Asset Management, and Daniel Moore from Investors Mutual. Welcome gentleman. The group that we're looking at today have got a yield that's a bit above the market, and have got some defensive attributes to those earnings so they can keep on delivering. Scentre Group, high quality portfolio of retailing assets. Buy, hold, or sell?

John Ayoub:
It's a short-term buy. Buy back's supporting it, retail foot traffic is improving. Structural headwinds aren't going away any time, but for the moment, it's a short-term buy.

James Marlay:
Okay. So buy there, Scentre Group. Very high quality shopping centres, buy, hold, or sell?

Daniel Moore:
It's a sell for us. Rents have been growing faster than retail sales for a long period of time. Because Westfield's had the balance of power on their side, and that balance of power is shifting now because vacancy's rising. So we see downside to rents meeting term. So it's a sell.

James Marlay:
Okay, it's a sell there. Tabcorp, buy, hold, or sell? Gambling, sustainable business, buy, hold, or sell?

Daniel Moore:
Yeah, it's a buy for us. We love the lotteries business. We think that's one of the best businesses in the market. Longterm licences that go for decades. Really like the growth coming through on the online side of the business. And on the wagering side, which has been competitive, there's a lot of consolidation going on. So there's hope that that part of the business will improve.

James Marlay:
Okay. Are you as bullish Daniel on Tabcorp? Buy, hold, or sell?

John Ayoub:
I agree with Daniel from the lottery perspective. It's probably the best business in the Australian market. However, it's a hold because the wagering headwinds aren't going away any time soon. They've done a fantastic job from a regulatory standpoint, but at current valuation, it's a hold.

James Marlay:
Okay. Spark Infrastructure. Regulated assets, buy, hold, or sell?

John Ayoub:
It's just a play on bonds. For me, some headwinds are going to come for their earnings in their outer years, it's a hold. Can't get excited.

James Marlay:
Okay. Can you get excited about Spark Dan?

Daniel Moore:
No, I'm the same. It's a hold. We see the dividends are probably going to get a cut on the next couple of years as the regulator resets their rates to lower bond yields. That's partly reflected in the share price, but it's not quite there yet for us to have a buy.

James Marlay:
Okay. Well here's your chance. Have you got a stock with a decent yield, sustainable earnings, that you like the look of today?

Daniel Moore:
I do, Amcor. Amcor's a buy for us. Stock's trending around 15 times, yield close to five percent. People are really worried about plastics. And when you do the analysis, we think that's overplayed. Less than ten percent of their revenues, we think, are exposed to sort of PET. And, we think there's good growth over the next two or three years from the synergies, from their Bemis transaction they've done.

James Marlay:
Okay. Have you got something with an above par yield and defensive earnings for us?

John Ayoub:
Well I'm going to suggest something out of the norm here, and I'm going to say Macquarie Bank. Now, four percent yield, have demonstrated that they have an ability to make money through the cycle, no matter what. And you look at where all their capital's going today, it's into those infrastructure style assets. So I think this is a stock that's going to be considered a yield stock going forward.

James Marlay:
Okay. Well when you're looking for your defensive yield, you've got to go just beyond the headline number, and find the companies with a decent outlook as well.