The market is down 6. The SFE Futures were down 49 this morning.

The Dow Jones closed down 171 overnight. Dow down 214 at worst and up 86 at best. The Dow closed down 171 points after three days of gains during which it was up 503. It was up 85 points at the open but dropped sharply in the first two hours. Fed Chairman Ben Bernanke gives a highly anticipated speech at a conference in Jackson Hole, Wyoming tonight. Bank of America closed up 9.4%, after being up as much as 26%, on news that Warren Buffett will invest $5 billion in the bank. Metals up LME overnight, oil price was up 14c to $85.30 and Gold put on $5.90 to $1763.50 after initially being down. The Aussie dollar fell to 104.34c from 104.74c.

Today’s news and results…

  • Fairfax Media (FXJ) reported an underlying net profit after tax was $273.7m, down 1.8% on the prior year but above the consensus estimate of $261m. FXJ up 7% to 83.5c.
  • Sims Metal Management (SGM) full year profit better than expected – up 51.6% to $192.1m from $126.7m a year earlier. SGM said they are pleased with the result in the face of uncertain global economic conditions.  Revenue increased 18.7% to $8.85 bn.  SGM up 2.5% to 1519c.
  • Lend Lease Group (LLC) full year profit up 42.6% to $492.8m, from $345.6m a year earlier. CEO Steve McCann said “Despite some short-term impact from weak consumer sentiment, the outlook across our businesses in Australia is positive,” He said market fundamentals are strong in Asia, while the economic outlook in the US and Europe remains “uncertain”. Will pay a final distribution of 15c per share, unfranked. LLC down 2.9% to 795c.
  • ASX Ltd (ASX) has appointed Elmer Funke Kupper as their next CEO after Robert Elstone steps down from the job. ASX up 26c to 2953c.
  • GPT Group (GPT) first half profit up 67% to $243.1m from $145.2m a year earlier. CEO Michael Cameron said “We have the platforms in place to deliver continued growth and we are on track to be Australia’s best performing property group”.  GPT up 1% to 303c.
  • Perpetual (PPT) has announced they will undertake a $70m off-market share buy-back. They also reported a 31% fall in full year net profit to $62m, down from $90.5m. PPT will pay a final, fully franked, dividend of 90c.  PPT up 12% to 2722c.
  • Alesco Corp (ALS) profit warning — ALS down 23% to 184c – says net profit after tax for the first-half of FY12 will be $6.2m to $7.5m, down from $10.2m a year earlier. Said “trading conditions had deteriorated at a faster rate than anticipated” following a “sharp fall in consumer and business confidence”. ALS
  • Nouriel Roubini, Chairman of Roubini Global Economic, the Federal Reserve will come out with QE3 — “The reality is we’re heading toward recession, and one of the few policy bullets [the Federal Reserve] has left is monetary policy or QE3”.

Subscriber Question: Could you explain why a consistent 13% dividend (including franking) on Telstra shares is treated with such disdain by many “experts”? Even though there may be no capital growth in the share value if the dividends are reinvested in more Telstra shares each year I am certain that the final result is much better than can be achieved by investing in many of the so called blue chip growth assets. Please explain why I am stupid?

The (short) Answer: The reason brokers haven’t been keen on Telstra despite the yield is simply because they have been paying their dividend out of debt, in other words they haven’t been earning the dividend they pay you.  You cannot do that indefinitely.

The only income stocks worth buying into are those that have solid dividend cover whose yields are sustainable over time thanks to earnings. The problem with Telstra has been earnings and a lack of growth and therefore a lack of dividend cover (paying out more than they earn).

What’s the point buying a stock for a 28c dividend when the share price loses you more than 28c a year? Telstra has lost versus cash every year until the recent bottom. So is it now a buy? Take a free 5 day trial at Marcus Today to read our full answer and articles on Income Investing.

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