Brokers Tip The Banks, Property Trusts

Sydney Morning Herald

Tuesday October 28, 1997

By MORGAN MELLISH

The volatility in the Australian sharemarket is leading investors to seek out high-yielding stocks with secure earnings such as banks and property trusts which are most sheltered from the instability in Asia.

The two traditionally high-yielding sectors have suffered less than the whole market since the big correction began earlier this month. Since the All Ordinaries index peaked on October 1, it has fallen 10.9 per cent. The Bank and Finance index is down just 8.4 per cent and the Property Trust index is down 7.2 per cent.

Stocks like Woolworths and Coles Myer are also performing relatively well because of their reliable earnings.

Unlike many sectors whose earnings are likely to be affected by the trouble in Asia, stockbroking analysts said the banks and the property trusts were likely to ride through the turmoil relatively unscathed.

And in a period of instability, shares that offer a dividend that translates into a high yield (annual dividend divided by share price expressed as a percentage) are more attractive. The average dividend yield for companies in the All Ordinaries index is about 4 per cent. For banks it is about about 5 per cent and property trusts are yielding about 7.5 per cent.

The after-tax dividend yield for these shares is higher for many investors after taking into account franking of dividends and the tax exemptions and deferrals involved in trustdistributions.

The major banks - with the exception of ANZ - and the property trusts have only a small or no exposure to Asia. Profits are more secure than other sectors exposed to the economic turmoil in Asia, like commodity producers and those that derive profits from Asian operations.

Also, unlike the late 1980s, when high interest rates hit property trusts, the low interest rates prevailing mean property investments are not as risky.

"We are recommending strong overweight positions in banks and property trusts," said Mr John Banos, Merrill Lynch strategy director.

"Banks have attractive dividend yields.

"Property trusts are attractive because rental yields are above the bond rate," Mr Banos said. "We see some growth in rental yields and property trusts will be very defensive in a volatile equity market."

Mr Michael Gordon, managing director of Schroders Investment Management said he was seeing a lot of investors switching into banks and property trusts because of the good yields and secure earnings.

"People are ducking for cover and looking for domestic stories and there's no doubt that the banks with domestic earnings are among the best of them," Mr Gordon said.

Ms Kylie Butcher, a property analyst with ABN Amro Hoare Govett, said: "Property trusts are half as risky as the rest of the market. If the All Ords falls 20 per cent, property trusts will only fall 10 per cent."

Ms Butcher said the major trusts such as Westfield Trust, GPT and industrial trusts like AMP Office Trust should do well.

BANKS AND PROPERTY TRUSTS
                                                                   Share price
        Div yield
National Australia Bank                                 $19.80
4.49%
Westpac                                                          $8.26
     9.20%
ANZ                                                                 $9.75
         4.72%
Commonwealth bank                                      $15.45
6.60%
Westfield Trust                                                  $2.62
     3.80%
General Property Trust                                     $2.53
7.98%
AMP Office Trust                                               $1.17
   3.76%
Industrial Property Trust of Australia                   98c
8.67%