Big Blue Chips Down Under

Australia and Canada have quite a few things in common. Notably both countries originated from British colonies, and share a similar parliamentary and legal system based on British Common Law. Both countries also share a similar GDP (Gross Domestic Product). From an investing point of view, the similarities are even more striking, with both countries being heavily dependent on resource economies. Both countries also share a similar exchange heavily weighted on financials (banks) and materials (mining stocks). Australia has a higher weighting towards mining companies, whereas Canada has an emphasis on oil and gas producers.

So why invest in Australian stocks? Simply put, the Australian economy has outperformed the Canadian economy. A two year chart of the All Ordinaries Index vs. the TSX Composite Index shows the trend – the gap would even be wider accounting for reinvested dividends:

2 Year comparison: Australian All Ordinaries vs. TSX Composite.

2 Year comparison: Australian All Ordinaries vs. TSX Composite.

Other than BHP Billiton (BHP or BBL) most large Australian companies do not appear to trade on the NYSE. Most Australian companies are not available outside of the Australian, London, or New Zealand exchanges. That makes purchasing the iShares EWA ETF the easiest way for Canadian and U.S. investors to gain exposure to the Australian economy.

The iShares MSCI Australia ETF (EWA)

These days there are ETFs for everything, and iShares Australia has these Australian indices covered. For U.S. and Canadian investors, the iShares MCSI Australian ETF (EWA) holds some of the largest Australian blue chips, as represented in the All Ordinaries Index (S&P/ASX). These are big notable dividend payers, such as BHP Billiton, Commonwealth Bank of Australia, ANZ, Woolworths, Telstra Corp. and Westside Petroleum. The current 12 month yield for EWA is 6.35%, less the MER of 0.53%, leaves a current annualized yield of approximately 5.82%.  That’s not a bad payout by any stretch, and beats XIC or XIU hands down!

BHP Billiton Ltd. (BHP or BBL)

BHP Billiton Ltd. (BHP) is one of the largest companies in the world, with a market cap currently at 170.2 billion USD. Before the slow-down in China this year, and decline in the resource sector globally, BHP had made the Top-10 list. In December 2012, it was the world’s fourth largest company by market cap, valued at $247B USD. This Australian mining giant has global reach. In fact, it is the world’s largest mining and resource company.

BHP Billiton extracts a broad range of minerals and resources, including: aluminium, coal, copper, iron ore, titanium minerals as well as oil, gas, nickel, diamonds and silver.  BHP made its claim to fame with Canadians back in August 2010, with its thwarted takeover attempt of Saskatchewan based Potash Corp. (POT).

Currently, BHP has a dividend yield of 3.56%, with a dividend payout ratio of 61.2%. The company has a strong profit margin of 14.35% and a debt to equity ratio of 52.5. BHP is now trading at $64.00 USD per share, off its low of $55.66 per share on July 5th, 2013. Shares of BHP and BBL (ADR) are available on the NYSE. For a more detailed analysis on BHP, check out the article by Dividend Mantra.

Commonwealth Bank of Australia (CBA.ASX)

Commonwealth Bank of Australia (CBA.ASX) is Australia’s largest bank with a market cap of over $115.81B Australian Dollars (AUD).  That works out to about $106.80B USD, or $110.53B CAD.  For comparative purposes, the Royal Bank – Canada’s largest bank, has a market cap of $94.86B CAD. Commonwealth Bank has a dividend yield of 5.00%, with a dividend payout ratio of 38.19%, and a solid profit margin of 36.53%. CBA currently trades at $72.70B per share, and is traded through the Australian Stock Exchange (ASX).

Purchasing Australian Equities

Most Australian stocks do not trade on the NYSE or TSX. However, investors may also be able to purchase these securities through global trading with their online broker. For Australian only traded securities, investors can also buy shares through ANZ share trading. Founded in 1835, Australia New Zealand (ANZ) Banking Group Ltd. is the third largest bank by market cap in Australia.

Readers, what’s your take? Have you thought of purchasing EWA or shares down under?

Disclaimer: Financial info in this article is taken from Yahoo Finance Australia, and Yahoo Finance Canada. I am not an expert in Australian securities, nor do I own EWA or any Australian stocks mentioned. I may initiate a position in BHP in the near future.

13 Responses to “Big Blue Chips Down Under”

  1. Dividend Mantra

    Jul 23. 2013

    Ninja,

    You back? Good to see you posting!

    Thanks for the mention. I think BBL/BHP is a solid value here. I was strongly considering adding to my position when BBL dipped to ~$50/share. I think that’s a steal, even factoring in the global slowdown in commodity demand (specifically China).

    Best wishes!

    Reply to this comment
    • Dividend Ninja

      Jul 23. 2013

      Hey mantra,

      I think BHP is indeed excellent value at this price, and certainly a steal when it bottomed out this month at $55 (and when you bought it in April at the same price). This is the key to value investing, isn’t it? Pick a point near a potential bottom when everyone else is running for the door. I think you made a great move on this back in April…

      I would really like to get into BHP as well, even at today’s price…. 😉

      Cheers
      The Dividend Ninja

      Reply to this comment
  2. Donna-Fay Digance

    Jul 24. 2013

    Welcome back!

    Reply to this comment
  3. farcodev

    Jul 24. 2013

    Yeeeeha! A DN post! 😀

    Interesting post, particularly since I’m near to finally put some money into NYSE stocks. It become hard to find cool companies at the right valuation now.
    It is the time for resources, I already bought a gold miner (IMG) and BHP seems to be a nice entry on US stock market 🙂

    Keep it up!

    Reply to this comment
    • The Dividend Ninja

      Jul 25. 2013

      Farcodev, thanx!

      Yes BHP/BBL trades on the NYSE in U.S. Dollars, but it is indeed an Australian company. I think BHP is great value at these levels, even if there is more downside.It would be considered “best in it’s class” company. I would not have hesitation to own it in my own portfolio…

      Cheers

      Reply to this comment
  4. Pacific

    Jul 24. 2013

    What about the chance of the Aussie dollar dropping? You didn’t mention the stability of it.

    Reply to this comment
  5. Welcome back Ninja!

    Great timing, I’ve been considering looking at Australian stocks for awhile now,

    The 5% yield for CBA looks very interesting.

    cheers!

    Reply to this comment
    • The Dividend Ninja

      Jul 27. 2013

      Kanwal, good to be back! thought a little sooner than I expected. 😉

      Other than buying BHP on NYSE, I don’t know if you will be able to purchase Australian securities directly – unless you have the ASX through your global trading platform. I believe there may be foreign ownership rules in place – but please correct me if I am incorrect.

      I think this is a situation where buying the EWA ETF makes the most sense, becuase you are essentially buying all the largest blue chips in Australia, and who can complain with an approx current 5.8% yield? 🙂

      For buying dividend stocks directly, I like BHP.

      All the best,
      Dividend Ninja

      Reply to this comment
  6. Thomas

    Jul 29. 2013

    So glad to see you back!

    Reply to this comment
  7. Welcome back!

    I’ll have to put BHP on my watch list now. It does have a nice yield and dividend growth it would seem.

    It’s an interesting aggregation of oil and mining and looking at potash in Canada too.

    Reply to this comment
    • The Dividend Ninja

      Aug 23. 2013

      PIE Thanx! 🙂

      I think the resource sector is a bargain right now, and will probably have many buy opportunities over the next while. BHP is definitely “best in class”, and certainly has a large enough global and economic moat.

      I’m also very interested in Potash Corp. at these price levels. I’d gladly buy BHP and POT now if I could, but alas no cash for new purchases. 🙁

      Cheers
      Avrom

      Reply to this comment

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