Whether your portfolio finishes the year in better or worse shape depends on two factors: Whether or not Washington reaches a compromise and avoids a fiscal cliff, and whether underlying fundamentals remain intact.
My forecast remains for U.S. lawmakers to reach a compromise, which in turn will dramatically bolster confidence in international stocks considered linked to global growth. That definitely includes the Canadian dollar and Canadian stocks, which are priced in and pay dividends in Canadian dollars.
Similarly, Australia's geography and massive base of natural resources have tied its fortunes much more closely to those of China in recent years. That helped it avoid a recession entirely in 2008-09. And in more recent years, the country has been able to avoid getting knocked off track by below trend growth in the U.S., as well as the crisis in the eurozone.
Unfortunately, a real U.S. recession in 2013 could have a substantial impact on Australian economy's growth. The collapse of Europe has deepened the trade relationship between America and China, and a real dive in the U.S. could have a substantial negative impact on the Middle Kingdom. That, in turn, would hit Australian stocks and the value of the Australian dollar.
Fortunately, odds still favor a deal in the U.S., which likely means more global growth, not less, next year. And few countries are in better shape to prosper from the upturn than Australia.
Artis REIT posted a 9.1 percent boost in third-quarter funds from operations per share, its primary gauge of profitability.
The headline number reflected accretive additions of property, adding 25.6 percent to revenue. And management achieved that expansion while reducing debt leverage to 48 percent of book value, down from 50.7 percent at the beginning of the year. Artis' payout ratio dipped to 81.8 percent from 87.1 percent, while the nine-month payout ratio came down to 84.4 percent from 92 percent in 2011.
Management continues to have success renewing leases at higher rates and expects to re-lease at higher rents the 15.8 percent of the portfolio up for renewal by the end of 2013. Current market rents are 6.5 percent above rents on expiring leases. Portfolio occupancy, meanwhile, increased to 95.3 percent during the third quarter, up from 94.6 percent on Jun. 30, 2012. Artis has hinted it would consider a distribution increase if results justified it. These numbers may not push it over the top, but they're certainly a step in the right direction.
Cineplex Inc. posted another steady quarter in the absence of a compelling movie lineup. Third-quarter revenue rose 1.7 percent despite a 1 percent dip in attendance from year-earlier levels. Cash flow margins dipped 1.4 percentage points but were still impressive at 19.4 percent, as the company added new services and products as well as theaters in several key locations. UltraAVX and IMAX accounted for 31.4 percent of the business during the quarter.
Basic earnings doubled, though free cash flow -- the primary metric for dividends -- was 19.6 percent lower in part due to higher capital spending. Despite that, Cineplex' payout ratio was steady at 58.8 percent, keeping the company on track for another sizeable dividend boost next year.
Australia remains largely an undiscovered country for many investors, particularly in the U.S. This means that investors may be missing out on great takeover plays like gold-rich Newcrest Mining Ltd. It also means that if these stocks do start to slip, the action could heat up very fast. And eventually they're going to trade at much higher prices.
In late October Newcrest told shareholders to "expect a period of strong dividend growth," thanks to still high gold prices and the winding down of a multi-year capital spending program to expand output. Rising free cash flow fueled by rising production from already expanded mines would also be a major attraction for a would be acquirer, particularly if Newcrest can deliver on plans for its Lihir mine in Papua, New Guinea. Newcrest one of the cheapest major gold mining companies in the world.
Equally, Oil Search offers investors a low-cost way to play the coming explosion of liquefied natural gas (LNG) exports from offshore Australian wells. The bloom has come off the rose somewhat in this sector in November, as Exxon Mobil Corp (XOM) stated the cost of its PNG LNG project would be 21 percent higher due to a stronger Australian dollar and construction delays.
Exxon and its partners Oil Search and Santos Ltd (OTCPK:STOSF) announced they would nonetheless boost projected production by another 5 percent. The project is 70 percent complete and slated to begin sales of LNG in 2014.
As for Oil Search, the stock is now roughly 15 percent below where it was a month ago. One possibility if it stays that low is a buyout of the company by one of its partners in Papua New Guinea, for which it would be a true minnow with a market capitalization of barely AUD9 billion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.