Australia’s largest listed bank showed why it’s the premium pick among ASX big bank stocks.

The Commonwealth Bank of Australia (ASX: CBA) issued its quarterly results this morning, which on the surface contained some disturbing pieces of news.

But if you scratched beneath the surface, there was plenty to like about the update that also contained clues about the bank’s dividends.

Ignore the bad news

As mentioned, you’d need to look past some of the disturbing news to get to the good stuff. The things investors may not like to hear about included a 23% crash in cash profit of $1.3 billion for the March quarter.

The bank also set aside $1.5 billion in additional provisions due to the COVID-19 crisis and warned that house prices could collapse by up to 32% under its worst case scenario.

But the update also reinforced my view that investors should be overweight on CBA relative to the other big three banks.

CBA’s dividend safer than peers

For one, I think CBA won’t be cutting its dividend nearly as much as its peers when it reports its full year results in August.

While there’re multiple earnings headwinds beating down on CBA, the bank’s CET1 ratio stands at 10.7%. Even after it paid more than $3.5 billion in interim dividends, its regulatory cash buffer is still comfortably above the 10.5% “unquestionably strong” level set by our banking regulator APRA.

What’s more, CBA now has an extra $1.7 billion to play with as it sold a 55% stake in its wealth manager Colonial First State to private equity group KKR.

Stronger balance sheet

What this means, in my mind, is that CBA’s management will have little excuse to make a dramatic chop to its dividend.

This sets the bank apart from its peers. Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) suspended dividends when they reported their interim results to keep their CET1 ratios at acceptable levels.

National Australia Bank Ltd. (ASX: NAB) went a step further and launched a $3.5 billion capital raise and slashed its interim dividend by two-thirds to 30 cents a share.

Worth paying for

There were concerns that CBA’s results will be equally as bad as its peers, but the most expensive big bank stock proved the adage “you get what you pay for”.

The more than halving in profits at the other big banks makes CBA’s 23% earnings decline look like a profit upgrade!

As inappropriate as it sounds during this coronavirus pandemic, experience taught me it’s often better to cough up for quality, especially during a crisis.

The only bank stock that I think is better placed is Macquarie Group Ltd (ASX: MQG), but if you excluded the investment bank, CBA is clearly the standout in the sector.

More reading

• 4 top ASX shares to invest $4,000 into immediately
• How can the ASX 200 soar with rising unemployment?
• ASX 200 down 0.9%: CBA reveals $1.5bn COVID19 provision & gold miners charge higher
• Dividends are drying up – but not for these ASX shares
• Why CBA, CSR, Fortescue, & Northern Star shares are pushing higher

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Yes, you really can become a better investor in just 2 minutes!

In his iconic 1989 book ‘One Up On Wall Street’, legendary investor Peter Lynch describes a 2-minute drill that he thinks any investor should follow before parting with their money:

Before buying a stock, I like to be able to give a two-minute monologue that covers the reasons I’m interested in it, what has to happen for the company to succeed, and the pitfalls that stand in its path.

The drill acts a lot like a safety barrier. It forces you to cement your arguments and think about potential risks that lie ahead. It also lets you identify when an investment is failing to perform and should be sold.

Lynch goes on to say “[o]nce you’re able to tell the story of a stock to your family, your friends, or the dog so that even a child could understand it, then you have a proper grasp of the situation.”

In fact, Warren Buffett is also an advocate for writing down the exact reason you’re thinking of buying shares in a company, commenting on the importance of knowing your motives:

One thing that could help would be to write down the reason you are buying a stock before your purchase. Write down “I am buying Microsoft at $300 billion because…” Force yourself to write this down. It clarifies your mind and discipline.

Let me show you what this practice might look like:

Should I buy CSL shares?

One company high on my watch list right now is CSL Limited (ASX: CSL).

My main reason for wanting to buy shares today is that I think CSL has a powerful flywheel and strong pricing power reminiscent of the best companies in the world. I think there will be strong, long-term demand for its patent-protected products which will drive continued revenue growth.

For this to happen, and justify the current share price, CSL will need to continue to invest in and develop innovative products. It will need to make some careful acquisitions. It will need to maintain its unyielding focus on customer safety. And it will need to relentlessly protect its supply of plasma, which is a key component of its products. 

Foolish takeaway

The 2-minute drill does not guarantee investment success, however, taking the time to think honestly about the company you’re about to invest in (and writing it down!) can give you clarity on your investment expectations. 

More reading

• 4 top ASX shares to invest $4,000 into immediately
• The smartest ASX shares to buy if you have $2,000
• Why the coronavirus is still affecting share markets
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately

Regan Pearson has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Newcrest Mining Limited (ASX: NCM) is making the most of the gold rush. The company’s recent debt offering has excited US bond investors. 

Newcrest is offering 2 tranches of senior secured bonds. The first is US$650 million worth of 10-year bonds with an annual coupon of 3.25%. The second is US$500 million of 30-year notes with an annual coupon of 4.2%. A senior bond takes precedence over other debts in the event that the company declares bankruptcy. 

Sandeep Biswas, Newcrest Managing Director and Chief Executive Officer, said the following in the company’s ASX release:

“I am pleased with the very strong demand for Newcrest credit which has enabled us to secure long-term debt at coupons much lower than that on our existing corporate bonds. This has allowed us to restructure and extend our debt maturity profile to better match our long asset life”.

The profitability of trust

The recent debt funding initiative follows a very successful capital raising via a share purchase plan worth $1 billion. Newcrest has built a reputation for prudent financial management of its assets under the management of Sandeep Biswas since 2014. 

On 30 April, it announced the canny acquisition of prepay and stream facilities and an off-take agreement in respect of Lundin Gold’s Fruta del Norte mine for US$460 million. This is on top of the company’s existing stake of 32% in mine owner, Lundin Gold.

This agreement provides Newcrest with access to 1.9 million ounces of gold over the life of the mine. 

Deal making like this has been evident in Newcrest’s recent purchases. These include the Canadian Red Chris mine, where the company has increased gold reserves via exploration, as well as its work-out exploration investment in Havieron, located approximately 45km from its Telfer mine site. 

Exploiting the gold rush

The purchase of streaming and off-take rights provides Newcrest with the ability to maintain its already low all-in sustaining costs of $827/oz. At present, the AUD gold price remains in record territory. This is despite a recent drop as the Australian dollar rose against the USD.

Newcrest continues its strategy of investing in tier 1 gold assets, often avoiding the premiums associated with takeovers. The company’s cost reduction strategies are playing out across all of its major mine sites.

It has a strong pipeline of replacement tonnes through the expansion of existing assets, and it secured a very lucrative streaming revenue stream through a debt offering lower than its current long term debt.

More reading

• ASX gold shares steady: Can gold provide your portfolio with defensive and safe returns?
• ASX 200 down 0.9%: CBA reveals $1.5bn COVID19 provision & gold miners charge higher
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Morgans warns investors to sell these ASX 200 shares in the rally

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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