Income/Yield switch to Growth at Reasonable Price & Yield
Date: 7/5/2024
*** GENERAL AVICE ONLY***
Income/Yield switch
Sell 7% BHYB to buy 4% WOW and add 3% BHP
The balanced portfolio has had a high allocation of fixed income over the last 11 months due to a lack of options for growth at a reasonable yield.
Our Fixed income instrument of choice has been the Australian Major Bank Hybrids (BHYB) which has resulted in a 8.03%* gain in 10 months (9.6% annualised) combining the yields and a small capital gain.
We are now starting to see opportunities in quality companies that have a high yield, reasonable price and growth prospects over the medium to long term
Recommendation
Sell one third or 7% portfolio allocation of BHYB
Previous allocation 25%
New allocation 18%
Price >9.98
Profit +8.03%** (2.46% capital gain & 5.57%)
*inclusive of franking credits
**ex-brokerage +7.03% inclusive of brokerage
Switching to
Buy 4% Woolworths (WOW)
Add 3% BHP (BHP)
*** Trade Plan ***
We recommend a switch to BHP and Woolworths as both companies sit at prices that represent value in terms of risk, growth and yield
Buy 4% Woolworths (WOW)
Woolworths Group has seen a uncharacteristically soft half relative to the prior year, partially explained by difficult comparables but, more realistically, a rare miss on execution. Recent issues like a lack of a collectables campaign, availability issues in fresh produce, headwinds in tobacco, and a distracted management are transient in our opinion and the with the$90-100m cost increase pa over FY25-26, the large supply chain and automation projects should lead to immediate efficiencies and net benefit by FY28
Buy 4%
New allocation 4%
Price <$31.00
Add 3% BHP (BHP)
Despite being around 50% iron ore, the company has been busy in the background planning for the future with a large investment in Potash (fertilizer) and the recent play for Anglo American would make BHP the biggest copper producer in the world, by quite a distance. Add to this the worlds largest Uranium deposit at Olympic Dam with a whopping 56 year mine life and BHP is well placed to take advantage of multiple segments in a potential commodity super cycle triggered by the energy transition and global food demand. At its current price of 43.50, BHP yields 5.43% (fully franked) with significant growth prospects in the coming years
Add 3%
Previous allocation 4%
New allocation 7%
Price <43.50
Disclaimer: The recommendation given is general advice only. It does not take into account your personal objectives, financial situation, or specific needs. This information should not be your sole resource when making such decisions. We strongly recommend you to seek the advice of financial, taxation, and legal professionals before finalising any investment decisions.