Equity Mates - Bad News For Banks & Miners, Where Did All The Dividends Go & Stocks With Freebies
The episode begins with a discussion on the Australian earnings season, focusing on the mining and banking sectors. Major mining companies like BHP and Rio Tinto have cut dividends due to lower profits, attributed to declining iron ore prices and production challenges. This reflects the cyclical nature of the commodity market and the impact of reduced demand from China. In contrast, the banking sector shows mixed results, with Commonwealth Bank outperforming its peers by increasing profits and dividends, while others like Westpac and NAB report declines. The discussion emphasizes the importance of investing in market leaders, as they often provide better returns despite higher valuations. The podcast also explores the concept of shareholder perks, highlighting various companies that offer benefits like discounts and gifts to their investors. However, it concludes that these perks should not influence investment decisions as they are not substantial enough to outweigh potential losses from poor-performing stocks.
Key Points:
- Mining companies like BHP and Rio Tinto have cut dividends due to lower profits, reflecting the cyclical nature of the commodity market.
- Commonwealth Bank outperformed other Australian banks by increasing profits and dividends, highlighting the value of investing in market leaders.
- Shareholder perks, such as discounts and gifts, are offered by some companies but should not influence investment decisions.
- Investing in high-quality market leaders often yields better returns despite higher valuations.
- The podcast encourages listeners to focus on the broader investment opportunities rather than short-term perks.
Details:
1. 🎙️ Introduction to the Episode
- The episode is recorded during the earnings season, referred to as 'reporting season' in Australia, indicating a time when many companies release their financial results.
- The hosts plan to discuss the performance and news related to both big and small companies, suggesting a broad analysis of the market.
- The episode will cover specific sectors such as banking and mining in Australia, showing a focus on key industries.
- They will also address the rationale behind investment strategies, providing insights into why certain investment decisions are made.
- A community question will explore companies that offer perks to shareholders, which might reveal unique benefits of investing in certain companies.
2. 🤑 Bryce's Investment Challenge Update
- Bryce's investment challenge goal is to turn $500 into $55,000.
- Super Micro, one of the stocks chosen, has increased by 110%, effectively doubling the investment in it.
- The total portfolio has increased to $663, reflecting a 36.36% growth over the last 3 weeks.
- To achieve the challenge, a consistent 23% monthly growth is needed.
- Bryce emphasizes the importance of portfolio construction as not all the funds were invested in the high-performing stock.
- Updates on the progress are shared on Instagram and Facebook Discussion Group.
3. 🏦 Earnings Season: Banks and Miners
- BHP reported its lowest dividend in 8 years with profits down 23%, primarily due to lower iron ore prices and production issues.
- Rio Tinto announced its lowest dividend in 7 years, with an 8% profit decline attributed to declining demand and pricing challenges in core markets.
- Santos cut dividends by 41% following a 14% drop in profits, influenced by softer commodity prices and operational inefficiencies.
- Mineral Resources eliminated their interim dividend entirely, reporting an $87 million loss driven by falling lithium prices and increased production costs.
- Overall, the mining sector is challenged by volatile commodity prices, particularly in iron ore and lithium, and various production challenges.
4. 📊 Australian Banks' Performance Insights
- Commonwealth Bank is considered one of the most expensive banks globally by some metrics, yet is argued to be of higher quality, indicating a strong market position despite high valuation.
- Westpac's quarterly profit is down 9%, NAB's half-year profit decreased by 1%, and cash earnings fell by 2%, suggesting challenges in maintaining growth amidst economic pressures.
- Adelaide and Bendigo Bank's net profit decreased by 23% while cash earnings are down by 1%, reflecting significant impact from external market conditions.
- Commonwealth Bank's net profit increased by 6% and cash earnings rose by 2%, with a 5% dividend raise, showcasing its robust financial performance and strategic advantage over competitors.
5. 🔍 Investment Strategies: Market Leaders vs. Followers
- Market leaders often justify their higher valuation through superior performance. For instance, Raa Group, a market leader, increased by 134% over five years, whereas Domain, a follower, decreased by 133%.
- Despite both Raa Group and Domain being expensive, Raa Group's high valuation (56 times earnings) reflects its market dominance, while Domain trades at 40 times earnings.
- In the banking sector, CBA, a market leader, rose 79% over five years, outperforming its peers Westpac, ANZ, and NAB, which increased by 25%, 12%, and 32% respectively.
- Market leaders attract top talent and invest heavily in product development and marketing, which helps them grow their customer base and market share, often at the expense of smaller rivals.
- The pattern of market leaders outperforming followers doesn't apply universally, as capitalism involves disruption, but the trend is notable in many cases.
- To illustrate further, market leaders tend to establish significant competitive advantages through innovation and strategic investments, which can include cutting-edge technologies or unique customer experiences.
- Additionally, followers often struggle with lower margins and limited resources, making it challenging to compete effectively against established leaders.
- However, disruption can occur when followers innovate or capitalize on emerging trends, potentially altering market dynamics.
- A balanced investment strategy considers both the stability of market leaders and the potential high-reward opportunities that followers may present in evolving markets.
6. 📈 The Power of Investing in Innovative Companies
- Woolworths, a dominant market leader, has achieved a 177% increase over the last 5 years, exemplifying the benefits of investing in leading companies.
- In contrast, CO's underperformance is evident with only a 22% increase within the same timeframe, emphasizing the risk of investing in laggards.
- Gold has consistently outperformed silver over the past decade, with Gold ETFs averaging an annual growth of 11% compared to Silver's 8.5%, indicating a strategic preference for gold investments.
- The Australian banking index has risen by 2.5% year-to-date, while the mining index has surged by 6.5%, highlighting sector-specific growth potential and providing strategic insights for sector-focused investments.
7. 🌍 Historical Perspective: Investing in World-Changing Technologies
- Investing in world-changing technologies through the stock market has consistently offered substantial financial opportunities.
- Historical examples include the motor car with Ford, kitchen appliances with Westinghouse, and electricity with General Electric, all of which were publicly traded companies.
- The telecommunications breakthrough led by Bell Telephone, which evolved into AT&T, also provided significant investment returns.
- The oil industry, exemplified by Standard Oil, transformed energy consumption and was accessible to investors through the stock market.
- Aviation advancements started by the Wright Brothers now continue with companies like Curtiss-Wright, demonstrating long-term investment potential.
- In contemporary times, technological revolutions such as PCs with Microsoft, smartphones with Apple, and electric vehicles with Tesla have continued this trend.
- The rise of e-commerce with companies like Amazon and Shopify has created new investment avenues.
- Recent developments in pharmaceuticals, like obesity drugs from Novo Nordisk and Eli Lilly, highlight ongoing opportunities.
- Current advancements in AI, represented by companies such as Nvidia, are further examples of the potential for significant financial gains through strategic investments in technology sectors.
8. 💡 Medical Breakthroughs: Investing in Health Innovations
- Investing in lesser-known health innovation companies provides opportunities to support impactful work from the comfort of home.
- In the 1980s, the HIV/AIDS epidemic was a significant health crisis, with widespread fears of it reaching epidemic proportions, as evidenced by a 1983 survey where 43% of Americans believed this.
- By 1987, the Australian government projected more deaths from AIDS than World War II, emphasizing the crisis's severity.
- Gilead Sciences, a $100 billion pharmaceutical company, revolutionized HIV treatment, demonstrating the drug's anti-HIV properties in 1997.
- This breakthrough led to PrEP (pre-exposure prophylaxis), a daily tablet that is 99% effective in preventing HIV transmission, transforming prevention strategies.
- PrEP offers a reliable prevention method for individuals at risk, including those with HIV-positive partners, significantly reducing new infections.
9. 💉 A New Era in HIV Treatment by Gilead Sciences
- Gilead Sciences is under FDA review for a bi-annual injectable treatment for HIV, which represents a significant shift from the current standard of daily oral medication.
- The injectable has been recognized as the 2024 breakthrough drug of the year by the journal Science, underscoring its potential to reduce HIV/AIDS as a global health crisis.
- Following the announcement, Gilead's stock price surged by 70% since mid-2023, indicating strong market confidence in the new treatment.
- Gilead's long-term performance includes an 11,000% return since 1992, demonstrating its capacity for innovation and value creation.
- This development highlights the crucial role of innovation in healthcare, mirroring trends in other areas like obesity drugs and targeted cancer treatments.
- The new injectable offers a more convenient alternative to daily pills, potentially improving adherence and outcomes for patients.
- The shift towards bi-annual injections could transform HIV treatment paradigms, offering greater patient convenience and adherence.
- Potential challenges include ensuring global access and affordability, addressing manufacturing and distribution logistics, and navigating regulatory approvals.
10. 🎁 Shareholder Perks: Are They Worth It?
- Companies sometimes offer additional perks to shareholders, like cruise credits, which go beyond financial returns.
- Shareholders should check their brokerage apps for potential eligibility for back payments of these perks.
- Lists of companies offering such perks are available for US and Australian shareholders, highlighting where these benefits can be accessed.
- These perks aim to engage and maintain investor interest beyond traditional financial incentives.
- Actionable step: Shareholders should directly contact companies they invest in to inquire about available perks and the process to claim them.
11. 🚢 U.S. Companies Offering Shareholder Perks
- Carnival Corporation, Royal Caribbean, and Norwegian Cruise Line Holdings offer onboard credits to shareholders, though the required share amount for eligibility is unspecified.
- Intercontinental Hotel provides booking discounts to shareholders.
- William at Valley Vineyards offers discounted wine purchases, VIP tours, and special events for shareholders.
- AMC Entertainment provides exclusive promotions and discounts to shareholders.
- Aon offers discounts and occasionally investor-exclusive offers.
- Online Vacation Center Holdings provides 5% cashback on cruises for shareholders.
- 3M offers an annual holiday gift box with 3M products, although the box costs $35 despite claiming a value of $80, including items like Scotch gift wrap tape and multi-purpose scissors.
- Lindt and Sprüngli offer a free chocolate box for shareholders attending the annual meeting.
- LVMH (Moët Hennessy Louis Vuitton) gives investors access to a special wine selection and an investor-only magazine through their Shareholders Club, with a minimum share requirement likely.
12. 🇦🇺 Australian Shareholder Perks
- Viva Leisure offers a 25% discount on health club memberships for shareholders owning at least 1,000 shares. With a share price of $1.42, this equates to a $1,420 investment. Metro gym memberships, valued at approximately $1,190 annually, are reduced to $850 with the discount. However, the stock has underperformed, down 8% in the last 12 months and nearly 50% over 5 years.
- EVT provides a shareholder benefit card for those with over 500 shares, offering discounts on movie tickets, 15% off hotel room rates, and 20% off hotel food and beverages. The share price is $12, requiring a $6,000 investment for significant savings.
- Mosaic Brands allows 10% discounts on purchases for shareholders with 2,000 shares. However, the company is undergoing bankruptcy, making the investment risky.
- Beacon Lighting offers trady discounts and free delivery for shareholders with at least 500 shares.
- Cedar Woods Properties provides a 5% discount on single residential land blocks and a 2.5% discount on new houses, townhouses, and apartments in their projects.
- Domino's Pizza has previously offered a 30% discount to shareholders, though this is not currently active.
13. 📞 Community Questions and Closing Remarks
- Shareholder perks, such as discounts or benefits offered by companies, are not substantial enough to be a decisive factor in investment decisions. The potential financial advantages these perks offer are minimal compared to the risk of investing in a company with poor financial performance.
- The hosts emphasize the importance of community engagement, encouraging listeners to participate by sending questions or feedback through voicemails or written communication. Active engagement, such as leaving ratings and reviews, is crucial as it helps the show grow and reach new audiences, ultimately enhancing the community's experience.