JonDent - Explorations in Electronics, Electronic Music, Coffee, Sci Fi, Art & Travel (but mostly electronic music)
Thursday, 30 January 2025
WES : Wesfarmers
WES wesfarmers
30/6/26
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Over the last five years, Wesfarmers (ASX:WES) has maintained exceptional financial health, characterized by steady profit growth, strong return on equity (ROE), and robust market performance. The company’s Return on Equity (ROE) has consistently hovered between (30%) and (36%), significantly outperforming industry averages.
5-Year Financial & Operational Highlights
- Profit Growth: Net profit after tax (NPAT) has grown consistently. The company reported full-year NPAT of ($2.93) billion in FY 2025 and an even stronger 1H FY 2026 net income of ($1.60) billion (a (9.3%) increase on the prior corresponding period). [1, 2, 3, 4, 5]
- Return on Equity (ROE): Driven by disciplined capital allocation across its diverse retail and industrial portfolio, WES recorded an impressive ROE of approximately (30%) in FY 2024 and expanded further to a range of (33%) to (36%) over the trailing twelve months. [1, 2, 3, 4]
- Debt & Leverage: The company’s debt-to-equity ratio has averaged around (128%) to (131%). While this indicates a leveraged balance sheet, it is typical for mature conglomerates. Wesfarmers has successfully managed this with stable operating cash flows and strong interest coverage.
- Dividends: A reliable income generator. Slowly growing over the last 6 years. WES shares have maintained strong, fully-franked distributions, with a 5-year average dividend yield near (3.4%).
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Wednesday, 29 January 2025
CBA
CBA Commonwealth Bank
22/07/26
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ASX:CBA has delivered stellar long-term total returns, buoyed by strong profitability. However, premium valuations have faced recent headwinds. [1, 2, 3]
Over the last 10 years, CBA’s key financial milestones include:
- Profitability & Revenue: CBA’s net profit has climbed significantly over the decade, consistently hovering between A$9 billion and A$10 billion annually in recent years. [1]
- Return on Equity (ROE): CBA maintains an excellent banking sector ROE. Historically, it has reliably averaged between 13% and 14%. [1, 2, 3]
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A bank's interest-earning assets are the financial instruments on its balance sheet that generate income through interest, making them the primary engine of a bank's core revenue.
The most common types of interest-earning assets include:
- Customer Loans: These are the largest source of interest income and include mortgages, personal loans, credit card balances, and commercial/business loans. [1, 2, 3, 4, 5]
- Investment Securities: Banks invest a portion of their funds in interest-bearing securities like government bonds (e.g., U.S. Treasuries, Australian Government Bonds), corporate debt, and mortgage-backed securities. [1, 2, 3]
- Interbank Loans: Money lent overnight or for short terms to other financial institutions (often referred to as federal funds sold or reverse repurchase agreements). [1, 2]
- Deposits at Central Banks: Cash reserves and balances held at central banking institutions (like the Reserve Bank of Australia or the Federal Reserve) that yield interest. [1, 2]
The profit generated from these assets is called Net Interest Income, which is calculated as the difference between the interest earned on these assets and the interest paid out to depositors on interest-bearing liabilities.
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- Debt: As a retail and commercial bank, CBA carries high raw liabilities (over A$200 billion in wholesale/debt securities), but maintains very healthy Tier 1 capital ratios heavily scrutinized by the Australian Prudential Regulation Authority (APRA). [1]
- Share Price Growth: Despite a recent double-digit pullback caused by shifting federal budgets and geopolitical/lending uncertainties, long-term investors have more than doubled their capital over the decade, including a share price that has sat well above the A$150 mark. [1, 2, 3]
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dividends
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AYLD - covered call ETF
AYLD - GLOBAL X S&P/ASX 200 COVERED CALL COMPLEX ETF
Quarterly distributions
Only partial franking - so use in super
9.9% - 07/07/26
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Mainly Australian stocks
| BHP | BHP Group Ltd | 12.07% |
|---|---|---|
| CBA | Commonwealth Bank of Australia | 10.54% |
| WBC | Westpac Banking Corp | 4.70% |
| NAB | National Australia Bank Ltd | 4.37% |
| ANZ | ANZ Group Holdings Ltd | 4.05% |
| Code | Company | Asset |
|---|---|---|
| WES | Wesfarmers Ltd | 3.46% |
| MQG | Macquarie Group Ltd | 3.23% |
| RIO | Rio Tinto Ltd | 2.63% |
| GMG | Goodman Group | 2.47% |
| TLS | Telstra Group Ltd | 2.24% |
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covered call
Covered call ETFs are investment funds that hold a portfolio of stocks and simultaneously sell ("write") call options on those assets or their underlying index to generate high, regular cash distributions. While they offer excellent immediate income and lower volatility in sideways or falling markets, they typically sacrifice long-term capital growth during bull markets.
How the Strategy Works
1. Portfolio: The ETF buys a basket of stocks (e.g., tracking the S&P 500 or ASX 200).
2. The Option Sale: The fund manager sells call options on those stocks. By doing this, the fund gives a buyer the right to buy the shares at a predetermined price (the strike price) in exchange for a fee, known as an option premium.
3. The Yield: The collected premiums are distributed to investors as regular (often monthly) income, which can supplement traditional stock dividends.
Pros & Cons
Advantages
High Cash Flow: Ideal for retirees or income-focused investors looking to generate tangible cash yield.
Downside Cushion: The collected premiums provide a buffer that can help minimize losses in a flat or bearish market.
Lower Volatility: They tend to experience smaller price swings compared to traditional, growth-focused index funds.
Disadvantages
Capped Upside: If the underlying stocks skyrocket, the call option will be exercised, capping your capital gains. You miss out on massive bull market rallies.
Eaten Principal in Crashes: While the premium offers a small buffer, it does not fully protect against severe market crashes.
Higher Costs: These funds require active, monthly trading to "roll" options, resulting in higher management expense ratios (MER) than plain index funds.
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Popular Examples Available to Australian Investors:
Global X S&P/ASX 200 Covered Call ETF (AYLD): Tracks the performance of the ASX 200 while selling call options to enhance yield.
Global X S&P 500 Covered Call Complex ETF (UYLD): Applies the same buy-write strategy to the S&P 500, targeting US equities. (no franking credits)
JPMorgan Equity Premium Income (JEPI / JEPQ): High-profile US-domiciled actively managed ETFs that use a mix of equity holdings and equity-linked notes (ELNs) to distribute high monthly income
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does a covered call etf protect against market crash?
No, covered call ETFs do not protect against a market crash. While the option premiums generated can provide a small initial cushion, they do not prevent your portfolio from losing value and will still suffer severe losses during a major market downturn. [1, 2, 3]
How Covered Call ETFs Work in a Downturn
- No Principal Protection: The underlying shares will plummet in value, causing the ETF's net asset value (NAV) to fall right along with the broader market. [1, 2, 3, 4]
- Limited Cushion: The cash premiums collected from the options may slightly soften the blow in a mild decline, but they are far too small to offset a massive market crash. [1, 2]
- Capped Recovery: While you suffer the full downside of a crash, your upside is capped during the recovery phase, which means it can take much longer for your investment to break even.
Finding True Protection
Because covered call strategies are primarily designed to generate income in sideways or slightly rising markets, they lack built-in tail risk or put option protections. If your goal is to explicitly hedge against a stock market crash, consider researching defensive vehicles designed to navigate extreme volatility, such as tail risk ETFs or hedged equity ETFs
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