Q: The vast majority of my holdings are non-dividend paying growth stocks. The one exception is HMAX, which I purchased earlier this year for its 15% dividend. It is now 3.5% of my portfolio and I am contemplating increasing this to a full position. My reasoning is that most of the bad news in the banking/insurance sector has already been factored into the share price and that, overtime, HMAX's value will rise again. Meanwhile, I'll receive a healthy dividend. I bought HMAX at $13.67; today it's trading at $13. 24. Do you believe the dividend is safe (I'm aware it was reduced last year from 17%) and do you see the current price as a buying opportunity assuming one has patience, likes the dividend, holds no other banks or insurance companies and expects only moderate growth going forward? Thank you.
5i Research Answer:
Yes is the answer on most of these questions. The distribution will vary with option premiums and did tick down for July (16.95c from 17.15c). But with multiple holdings diversification offers some income protection. Sentiment in the sector is low, and this has lower valuations. But we are quite comfortable with some exposure to the sector and for an income-focused investor we would be fine buying this.