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Simon’s weekly wrap: Dividend kings and possible stock picks

Companies with attractive current valuations; Datatec and OutVest’s offerings, new deadlines for Sars e-filing and auto-assessment, and more.
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Local bank share prices have been under serious pressure, as impairments are rising and the SA Reserve Bank (Sarb) asked them to halt dividend payments. Allan Gray Portfolio Manager Tim Acker notes that impairments would need to rise to historic highs of 4% before banks would no longer be profitable. Not only is a 4% impairment level unlikely but, being well capitalised our local banks will survive the pandemic – and as such, the current valuations are attractive. Allan Gray prefers Standard Bank and FirstRand, pointing out that for a long-term investor the current valuations are very attractive.

The JSE has very few tech stocks for investors with one of them, Datatec, issuing a strong update earlier in the week. It operates in the cloud and networking space, supplying the equipment that makes networks operational. This has long been a good space to operate in and the pandemic has increased demand on networks – and as such for Datatec’s offering. Keith McLachlan of AlphaWealth is very bullish on the share and from crunching valuations he says the stock is probably trading at about a 50% discount to its true value.

With the Sarb cutting interest rates by another 0.25%, to multi-decade lows, finding yield is an almost impossible task for savers. Options such as Government Retail Bonds offer attractive rates, but once you’ve used up your interest tax exemption the tax starts to eat into the rate. OutVest has an endowment policy, that in the right circumstance (tax rate and interest exemption) can deliver very solid returns. It does however have a five-year lock-in and does not pay the interest over the term, only at the conclusion of the term.

Another option for those looking for income from the market is that rare stock with a decade-long track record of paying increasing dividends. I spoke to Charl Bester of Kruger International on the dividend kings such as Johnson & Johnson, which has a 50-year track record of paying increasing dividends and is unlikely to stop doing so any time soon. A strong diverse portfolio should absolutely have some of the tech giants, but including solid dividend payers adds not only income but also lower overall portfolio correlation and better diversification.

Also this week:

Nick Kunze of Sanlam Private Wealth talks MTN, gold and US bank results so far. Ettiene Retief, chairman of national tax and Sars committee for Saipa on the new deadlines for Sars e-filing and auto-assessment.


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