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Dividend Portfolio: Income Stock (ASX: WOW)


Published 20-JAN-2016 00:00 A.M.


2 minute read

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The below articles were written under our previous business model. We have kept these articles online here for your reference.

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Overview: Woolworths Limited ("Woolworths, the Company") is an Australian diversified retail company that owns the Woolworths supermarket chain and other franchises with exposure to Food & Liquor, Petrol, Hotels, Merchandise, and Home Improvement. Woolworths operates in Australia and New Zealand and owns major brands such as BigW, Beer Wine Spirits (BWS), or Dan Murphy’s. The Company was founded in 1924 and listed on the ASX in 1993.

Catalysts: Woolworths has a long-lasting history of delivering shareholder value and sustainable growth. Whilst 2016 earnings are expected to be ~25-30% below the previous corresponding period, increased investment initiatives have the potential to yield long-term economic benefits. Upside stems from the planned exit of the loss-making Masters business. The projected FY16 dividend yields 5-6% at current prices and is expected to be 100% franked. Recent management changes complement the favourable track record of existing board members in capital markets.

Hurdles: Woolworths has recently posted declining earnings and there is no guarantee that increased investments as part of the ‘change program’ will attract new customers. The retail sector is highly competitive which may put downwards pressure on profit margins as competitors offer low prices in order to gain market share.

Investment View: Woolworths offers profitable exposure to a medium-term turnaround of one of Australia’s largest diversified retailers. We are attracted to its long-term growth trajectory, market share, and dividend yield. The competitive environment and recent loss of growth momentum are principal risks. The stock is trading at an undemanding valuation relative to its long-term average due to bearish sentiment and a chain of negative announcements. We favour the balance of risk and upgrade our view from ‘hold’ to ‘buy’.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.