June quarter distribution explained

The S&P/ASX 200 finished 17.9 points or 0.31% lower over the week, at 5703.6.

We are at a tricky time with the stock market and July is set to be an important testing month for stocks. At the moment the bond market is pointing to higher interest rates on the horizon and this can make stocks succumb to gravity. But that should not really surprise anyone and that’s because the global economic outlook is actually looking to be the best it’s been since before the GFC.

So while the bond market is making some experts tip stocks could fall, Citi Research in the USA says the rising earnings per share in nearly all stock markets worldwide augurs well for those wanting to stay long stocks.

July is a great month for Aussie stocks as the following chart shows:

I hope July’s record stays intact but who knows with stocks? However, I will be a buyer of SWTZ if the market behaves too negatively as I think we will finish the year a lot higher than we are today.

In today’s video, Peter Switzer and George Boubouras share what’s been happening on the stock market and how the Switzer Dividend Growth Fund has performed.

From our Investment Adviser: Portfolio update

The fund has operated for just over four months. Over a relatively volatile four months, the fund has managed to keep up with the ASX200, finishing the financial year up 0.15% compared to the broader market of 0.23%. We paid our first distribution in April and have the second distribution payment coming up – more on that below.

The broad strategy is to hold a diversified spread of stocks with a bias towards yield and quality. The portfolio characteristics support this with the current gross yield of the portfolio expected to be 6.4%.

The portfolio dividends are expected to grow 7% over the next year.

The positive contributors since inception have been Iluka Resources, Spark Infrastructure, Amcor Ltd, Fairfax Media Ltd, Challenger Ltd, Suncorp Group and Caltex Australia. There is a healthy mix of sectors represented in the list of contributors.

Iluka Resources has been sold out of the portfolio. The share price has run strongly and although we still believe that there may be some upgrades to mineral sand prices, we think it is now largely in the share price. Significant profits were realised on this position.

Although it appears that both Fairfax takeover offers have been withdrawn, the fund has been disciplined in selling into strength. We have taken profits over the last couple of months at higher levels.

The share prices of the banks have been slightly disappointing but are now offering grossed up yields of 7.3% to 9.2%. We continue to view them as a good source of reasonably secure fully franked dividends.

Distribution update

The fund went ex-distribution today and is preparing to pay this distribution on the 24th of July. The distribution will be 1.21103 cents per unit. This distribution will have a lower franking of around 11.5% because distributions from REITs (Real Estate Investment Trusts) received last quarter which were unfranked. The distribution will also include realised capital gains.

As you can see in the chart below, next quarter will see a bigger distribution with more franking. This is a result of fully franked bank dividends which will be received this quarter.


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