Table Of Contents
Earnings Growth
In my article It’s All About Company Earnings I compared the earnings growth of one of the major banks to their share price movements. This allowed me to demonstrate their clear link. Between 2005 and 2015 the banks’ earnings grew by between 5% and 10% pa, while a $100,000 investment grew to $175,525 over the 10-year period. Since then the banks’ earnings growth has declined to an average of just 1% pa, and the investment value has fallen to $91,910 at 30 June 2020. There is a clear link between earnings growth and share price growth (or decline) and my analysis of their dividends also demonstrated that they are also linked to earnings growth.
Projected Returns
In that same article, that was published last week, I provided a guide as to the likely return of the four major banks and a popular ‘good dividend paying company’.
These are five of the most popular investments for retirees, but their combined projected return over the next two to three years is a negative 0.5% per annum. In a world full of uncertainty, this is clearly a poor risk/return outcome.
Growth Companies
From Australia’s largest 50 companies I feel that there are six that standout. These companies are forecast to grow their earnings by between 6% and 30% per annum over the next two to three years.
Along with their solid dividends, which average 2.3%, and the combined projected return of these six companies is an exceptional 14.1% per annum over the next two to three years. I’m sure that you’ll agree that this is a very good risk/return trade-off.
The Decade Ahead
These six standout companies in Australia today are not the recently booming technology or software companies. My clients have been invested in these six standout companies for at least five years, and four of the companies my clients have held for more than 20 years. The health and economic challenges that the world faces over the next decade will almost certainly make obsolete diversifying across 100s of companies through a managed fund or ETF. You will have to be invested in only standout Australian companies and global companies to protect your wealth against negative earnings growth, falling share prices and achieve the returns that you need to maintain your lifestyle.
Next Steps
If you are interested in having your investment portfolio reviewed to ensure that you are invested in the right companies for the decade ahead, please give me a call (phone: 916 00 288) or email at info@lanham.com.au
Disclaimer: This information is general advice only, & has been prepared without taking into account the objectives, financial situation, or needs of any individual. It is not a specific recommendation to buy, sell or hold any product or security. Readers should seek financial advice before making a decision & should consider the appropriateness of this advice in light of their own objectives, financial situation, & needs.
Peter Lanham
