Top 10 ASX dividend stocks to watch in January 2023

As interest rates peak in the next few months – reducing the comparative value of dividend-yielding stocks – it’s important to review which stocks to keep in the portfolio for 2023 and which to trade out.

ASX dividend stocks: What you need to know

When buying shares, investors typically benefit in two ways: from capital gains due to an increase in share price, and profits paid out in the form of dividends.

Dividend stock investors view a stock’s dividend yield as a key measure of a stock’s value. It offers an insight into how great the return on an investment will be. To calculate the dividend yield, investors simply divide the annual dividend paid by the share price.

To begin initial research, IG offers market screeners to filter out ASX stocks with the highest dividend yields.

Investors should then inspect an individual company’s financial status to determine the future viability of its dividend yield. At a minimum, this should include its historical profit generation, debt levels, and prior dividend history.

Not all dividend stocks are appropriate for all portfolios, so we screened 302 dividend-yielding stocks to find six that offer unique advantages.

Amongst the screening criteria we used were:

• Dividend yield, defined as dividends paid over the past 12 months divided by the share price on 9 January 2022
• Cashflow
• Dividend growth over the last five years
• Market price correlation (beta) based on monthly price movements over the past five years
• Outlook for the next 12 months based on a slowing economy and interest rates peaking

The stocks are summarised below as of 9 January 2022.

1. APA Group

APA Group is an integrated energy infrastructure company operating in the electricity and natural gas sectors. It has interests in gas-fired power stations, solar and wind farms, gas storage, gas processing, gas compression, gas pipeline and consumer gas connections.

As a gas consumer, APA could be a beneficiary of the Abanese government’s $12 per gigajoule price cap, which appears to have brought prices down from $23 at the start of December to around $10.50.

Natural gas will likely be around for many decades to come. So APA’s heavy weighting towards natural gas could help its longevity.

2. Mercury New Zealand

Mercury NZ generates electricity in New Zealand through nine hydro generation stations, five wind plants and five geothermal generation stations.

New Zealand is aiming to reduce reliance on natural gas and coal. The approach New Zealand has taken is with tradable carbon credits, which create a market mechanism aimed at reducing carbon emissions as efficiently as possible.

Over time, the government raises the cost of buying carbon credits, which increases the incentive to reduce emissions. This could phase out coal and natural gas and drive up the price of electricity.

3. Charter Hall Group

Charter Hall is one of Australia’s leading fully integrated property groups. The company operates 1,100 long-leased properties with a total value of approximately $73 billion.

Unlike REITs, Charter Hall doesn’t own these properties; it leases them out to blue-chip tenants on behalf of its clients. Its largest three tenants are the Commonwealth Government, Wesfarmers and Coles.

Over the past five years, funds under management more than tripled from $19.8 billion to $65.6 billion, operating earnings more than tripled from 36 cents per share to 116 c/s, and cash dividends paid out increased from 30 cents to 40 cents per share.

4. Elders Group

Elders provides agricultural inputs to farms including seeds, fertilisers, chemicals, animal health products and agricultural services, among others.

The war in Ukraine has helped push up the prices of corn, wheat and beef, all of which are significantly higher than in 2019. This should help Elders maintain their growth.

The company has increased sales every year for the past four and increased dividends every six months for the past 30 months.

Elders has increased dividend payments every six months since 2019 and paid out 50c over the past year.

5. Accent Group

Accent is a giant footwear and apparel distributor in Australia and New Zealand. It operates 760 stores and 36 websites across 26 retail brands and has exclusive distribution rights for 18 international brands.

While most types of apparel are now online, stores such as The Athlete’s Foot, Dr. Martens and Platypus Shoes still require brick-and-mortar stores. Accent Group appears to have found the balance between physical stores and websites.

Despite having over 400 stores temporarily closed due to government mandates during the pandemic, Accent Group still increased sales by 11%, turned a profit, and opened 124 (net) new stores.

6. McMillan Shakespeare Limited

McMillan Shakespeare provides financial services to large organisations (government, private and non-profit) in Australia, New Zealand and the UK. The financial services include novated leasing (leasing a car through an employer), salary packaging, asset management and disability plan management, among others.

This is a stable industry that is growing slowly in these three countries’ service-based economies.

When heading into economic uncertainty, a company in a stable industry is more likely to be able to maintain dividend payments.

7. Infomedia Ltd

Infomedia develops and supplies electronic parts catalogues, service quoting software and e-commerce solutions for the automotive industry in over 180 countries.

As traditional cars continue to be increasingly digitised and electric vehicles even more so, Infomedia has increased its presence in auto service solutions and parts sourcing and cataloguing.

Over the course of the pandemic, Infomedia increased revenue each year, including a healthy 23% from FY2021 to FY2022. Significantly, the main driver of growth was the Americas which is now their largest market.

8. Zimplats Holdings Limited

Zimplats engages in the production of platinum and associated metals in the Great Dyke in Zimbabwe.

The downside of operating in Zimbabwe – the country that at one point in 2008 experienced 80 trillion per cent per month inflation – is that it is economically, financially and politically somewhat less stable than most countries.

Revenue and earnings were a solid USD 1.24 billion and USD 0.35 billion in FY 2022, ending on 30 June this year. That puts the company on a P/E ratio of 5.9 and a dividend yield of 11.2%.

9. Kina Securities Limited

Kina Securities provides commercial banking and investment banking services in Papua New Guinea.

Kina has grown rapidly over the past three years, with revenue and profits up 118% and 47%, respectively.

This is a frontier market where risks are generally considered to be higher than in Australia. The upside is that as of 10 October it was trading on a 10.8% yield, unfranked.

10. Shine Justice Limited

Shine Justice is a damages-based legal consulting company operating in two segments: Personal Injury and New Practice Areas. The company has 54 branches in New Zealand and Australia.

Shine Justice makes this list because litigation isn’t dependent on a good economy. People sue in good times; people sue in bad times. This may explain the low beta value of 0.29.

Shine Justice has been growing steadily over the past three years, with revenue up 21% over 2019 . Significantly, revenue grew every year through the pandemic, suggesting a level of recession-proofing.

How to trade or invest in ASX dividend stocks

1. Learn more about ASX dividend stocks
2. Find out how to trade or invest in ASX dividend stocks
3. Open an account
4. Place your trade

You can open a position on ASX dividend stocks either through share trading or derivatives trading. Share trading means that you take direct ownership of the stock. By comparison, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them.

For a complete breakdown of the benefits and drawbacks of each strategy, please click here.