As evidenced by third-quarter gross domestic product (GDP) growth, Australia’s economy continues to struggle amid falling investment in the resource sector and a decline in commodity prices. And the non-mining sectors have yet to show evidence of the strength necessary to lead the country’s economy until commodities eventually rebound.

GDP grew just 2.3 percent during the third quarter, three-tenths of a percentage point below economists’ consensus forecast and a decline of a tenth of a point from the prior quarter’s revised number. Similar growth is projected for the fourth quarter, with Bloomberg’s survey of institutional economists showing the consensus stands at 2.3 percent.

As we’ve noted in recent issues of the Down Under Digest e-letter, Australia’s export activity has been surprisingly strong, and it was a major factor in driving the economy during the third quarter. In particular, China’s demand for iron ore, which is Australia’s single biggest export, ensured that the mining sector was a key contributor to third-quarter growth. While mining investment may have peaked, various projects are finally moving into production.

The economy is expected to finally start rebounding in earnest toward the latter half of 2014, though it won’t be until the following year when it comes close to growing at its long-term trend of 3 percent, or perhaps even exceeding it. While private-sector economists forecast the economy will grow by 2.9 percent in 2015, the Reserve Bank of Australia (RBA), whose estimates are generally more conservative for this year and the next, projects GDP growth of 3.5 percent in 2015.

In the meantime, the RBA is attempting to engineer a decline in the exchange rate in order to help boost the economy by making the country’s exports more competitive in the global markets. But its success in doing so has largely been constrained by US Federal Reserve policy. Indeed, movement in the Australian dollar this year seems to have been largely correlated with traders’ expectations surrounding the eventual curtailment of the Fed’s extraordinary stimulus, rather than the RBA’s actual rate cuts.

And while central bankers ordinarily undermine a currency through additional monetary easing, the RBA’s policymakers are becoming increasingly concerned that historically low interest rates are creating a housing bubble. As such, the RBA has held its cash rate at 2.5 percent since August, which is an all-time low.

In lieu of rate cuts and until there’s further clarity on the Fed’s timetable for tapering, the RBA has taken to talking the currency lower. This jawboning effort has taken place on a number of fronts, including in the central bank’s monthly statement on monetary policy, wherein it’s characterized the exchange rate as “uncomfortably high.”

In late November, RBA Governor Glenn Stevens even observed that “that foreign-exchange intervention can, judiciously used in the right circumstances, be effective and useful.” More recently, he told the Australian Financial Review that it made more sense for the Aussie to trade near USD0.85, rather than USD0.95.

That appears to have done the trick, at least in the short term. The Australian dollar has fallen from a trailing three-month high of USD0.97 in late October to just below USD0.90, which is near the year-to-date low of USD0.89 set back in late August. The Aussie is now down about 15.4 percent from its year-to-date high in early January. Of course, if the Fed continues to defer its taper that could undo Mr. Stevens’ diligent work, and rate cuts would prove necessary.

Interestingly, Westpac Banking Corp (ASX: WBC, NYSE: WBK) Chief Economist Bill Stevens doesn’t see the Fed tapering until 2015 and, therefore, believes the Australian dollar will “drift upwards rather than falling.” As a result, he says the RBA could cut rates again some time during the second quarter of 2014. However, his private-sector peers see the Aussie trading around USD0.89 next year, according to a Bloomberg survey. But they don’t project the exchange rate to fall to Mr. Stevens’ preferred level of USD0.85 until 2018.

The economy did deliver one bit of good news recently. According to the Australian Bureau of Statistics, the economy added 21,000 jobs during November, more than doubling the consensus forecast of 10,000 jobs. In fact, this was the strongest growth in payrolls since April and comes after a dismal six-month period during which the economy actually lost an average of 2,700 jobs per month. Full-time employment rose by 15,500 positions, while part-time employment increased by 5,500 jobs.

Less reassuring is the fact that the unemployment rate remained at 5.8 percent, which is just below the five-year high, while the labor force participation rate remained at 64.8 percent, the lowest level since late 2006. However, the latter is only off its resource-boom high by 1.2 percentage points.

In addition to the RBA’s efforts, the ascendant Liberal-National Coalition is moving to repeal both the carbon tax and the Minerals Resource Rent Tax (MRRT), which should be a marginal positive for the resource sector. However, it could take until next summer to overturn these taxes, as the newly elected members of the Senate won’t take their seats until then. In the meantime, the government is also aggressively pursuing long-stalled bilateral free-trade agreements with regional peers, such as China, South Korea and Japan.

All of these actions augur well for Australia’s economy in general and our investments in particular.

Dividend Watch List

AE Portfolio Aggressive Holding WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY) is new to the Dividend Watch List this month after management in late November repudiated guidance provided at its October annual general meeting and advised the market that rather than “increase” versus the fiscal 2013 figure of AUD322 million fiscal 2014 underlying net profit after tax (NPAT) would come in at AUD260 million to AUD300 million.

Based on results since July 1, as WorleyParsons has “experienced a delay in upturn” in its market, management adjusted its forecast and now expects to report underlying NPAT of AUD260 million to AUD300 million for fiscal 2014, with first-half underlying NPAT of AUD90 million to AUD110 million.

WorleyParsons’ policy is to pay out 60 percent to 70 percent of NPAT in dividends to shareholders, with the balance retained to fund growth. The payout ratio for fiscal 2013 was 70.8 percent based on a full-year dividend of AUD0.925.

At the low end of management’s new guidance the fiscal 2014 dividend would be approximately AUD0.75, at the high end approximately AUD0.86.

We’re maintaining WorleyParsons in the Portfolio, though we’re reducing our buy-under target to reflect market realities.

WorleyParsons is a buy under USD16 on the Australian Securities Exchange (ASX) using the symbol WOR and on the US over-the-counter (OTC) market using the symbol WYGPF if you don’t already own it.

WorleyParsons also trades on the US OTC market as an American Depositary Receipt (ADR) under the symbol WYGPY. WorleyParsons’ ADR is worth one ordinary, ASX-listed share and is also a buy under USD16 if you don’t already own it.

Also new to the Watch List this month is testing services provider ALS Ltd (ASX: ALQ, OTC: CPBLF), which reported a 27.9 percent decline in fiscal 2014 first-half NPAT on a 8.5 percent revenue decline and declared an interim dividend of AUD0.19, down from AUD0.21 a year ago.

Continuing weakness in the global mineral exploration market–ALS’ largest end-market–has revealed itself in these numbers. ALS remains a buy under USD9.

Joining the List too is remote area communication equipment and systems maker Codan Ltd (ASX: CDA, OTC: CODAF), which cut its fiscal 2014 first-half profit guidance in half to AUD4 million to AUD5 million.

Sales of its key metal detector product to gold-seekers in African markets have fallen off a cliff, and its dividend is likely to follow suit. Codan is now a hold.

Catching up on Watch List veterans, Metcash Ltd (ASX: MTS, OTC: MCSHF, ADR: MHTLY) CEO Ian Morrice, on the job since July 1 , 2013, announced a reorganization of the business that will result in two separate divisions, food and groceries distribution and convenience store supply, reversing consolidation approach pursued by predecessor Andrew Reitzer since 2011.

The move comes less than two years after the two sales channels were merged under a single banner and reverses changes that were supposed to lead to cost savings.

The additional focus on the key supermarkets business makes some sense, but it does undo a previous structure that was put in place to “end the duplication of many processes.”

Mr. Morrice noted that the restructure was needed “to provide a greater turnaround platform for our supermarkets business and optimize the growth opportunities identified in the convenience channel.”

Management reiterated recent guidance for fiscal 2014 full-year decline in underlying earnings per share (EPS) in the high single digits. A rising cost of doing business is cause for concern, and management also must address approximately AUD700 million of aggregate debt maturities in 2014 and 2015.

Metcash declared an interim dividend of AUD0.095 per share, equal to last year’s half-year dividend, as management reported a statutory net profit after tax (NPAT) of AUD98.9 million for the six months to Oct. 31, 2013, up from AUD82 million for the same time last year.

Underlying profit, which excludes one-off items such as Metcash’s exit from the Franklins business, was down 2 percent to AUD119 million.

Revenue for the period was up 5 percent to AUD6.65 billion. Pre-tax profit was down more than 6 percent to AUD193 million.

The company paid a full-year dividend of AUD0.28 for fiscal 2013, good for a payout ratio of 85.9 percent of underlying EPS. Even a 7 or 8 percent decline in underlying EPS, assuming a flat dividend rate, would put a lot of pressure on the payout ratio. Metcash is a buy under USD4.

GWA Group Ltd (ASX: GWA, OTC: GWAXF, ADR: GWAXY) won’t pay a dividend after announcing a AUD17 million impairment charge to be taken against fiscal 2014 first-half results on its Gliderol garage door business.

Management noted that “significant improvements” have been achieved for the unit and that trading results are beginning to reflect this. But progress has been slower than expected. The top priority now is on growing sales and market share amid an improving overall market for the home improvement segment.

But the impairment expense means that GWA is unlikely to have sufficient retained earnings from which to pay an interim dividend, as the board believes it “unwise” to make a payout that’s not backed by profits.

Management expects to resume its dividend with the final payment for fiscal 2014.

GWA did reiterate full-year earnings before interest and taxation (EBIT), and excluding the impairment charge, of approximately AUD80 million.

GWA is beginning to see the benefits of its December 2012 restructuring, as Bathrooms & Kitchens market share gains led to 31 percent growth in fiscal 2014 first-quarter EBIT. Sales revenue was up 2 percent. GWA is a hold at current levels.

Fiscal 2013 reporting season Down Under resulted in a number of dividend reductions, omissions and discontinuations, concentrated in the Basic Materials group.

We’ve also seen a number of 2013 full-year and fiscal 2014 guidance announcements, with potential implications for final and interim dividends.

Basically the entire Basic Materials section of the How They Rate coverage universe can now be considered on the List, in one sense because all those companies are exposed to volatile resource prices, in another, more concrete way because most announced lower dividends this period than they did for the last one, one of the criteria that will get you a place on the List.

The Watch List is rather lengthy, a reflection of longstanding dividend practice for Corporate Australia, which as a general rule is not bound by strict dividend rates but rather by payout ratio ranges when it comes to “capital management” policy.

We have, however, removed companies that have omitted dividends for more than two consecutive cycles; for these companies dividend policy can be considered “discontinued.”

Australian companies customarily maintain policies of paying out a specified percentage based on particular earnings metrics, whether that metric is statutory net profit after tax (NPAT), underlying NPAT or operating cash flow.

Practically speaking, dividend rates will often vary more than they do for Canadian or US companies, which are almost universally pledged to maintaining dividend rates, often at the cost of tapping balance sheets in the absence of sufficient cash flow to cover obligations to shareholders.

This latter is fine in the short term, and it can be manageable in the longer term as well. But Australian firms are traditionally more debt-averse than their North American counterparts.

It’s important to note, too, that the CE Dividend Watch List is based on the monthly distribution scheme established during the income trust era, which, to the benefit of investors everywhere, persists even after the forced conversion to traditional corporations for many of these stocks.

Australia’s twice-yearly rhythm varies as well from the quarterly dividend arrangement to which most US companies adhere.

With recent dividend reductions and/or changes to guidance or policies that suggest non-regular payment the following companies have declared their worthiness for inclusion on the Dividend Watch List.

Basic Materials

Aditya Birla Minerals Ltd (ASX: ABY, OTC: ABWAF) reported a 1 percent rise in fiscal 2013 revenue to AUD502.3 million, but management reported a net loss of AUD8.3 million and didn’t declare a final dividend.

Company policy is “to seek to maximise cash returns to Shareholders whilst having regard to ensuring a sound financial structure for the Company and providing for value accretive development and exploration activities and targeted growth opportunities.”

Because there’s no clarity on the payment interval this stock will probably be an emeritus member of the Dividend Watch List. Hold.

Arrium Ltd (ASX: ARI, OTC: ARRMF, ADR: OSTLY) declared a final dividend of AUD0.03, in line with the prior corresponding period, as it reported a fiscal 2013 statutory net loss of AUD695 million due to AUD961 million in impairment and restructuring charges.

Underlying net profit was in line with guidance at AUD168 million, and management offered upbeat fiscal 2014 guidance. Hold.

Ausdrill Ltd (ASX: ASL, OTC: AUSDF) management has provided initial fiscal 2014 guidance of revenue of AUD825 million to AUD925 million and net profit after tax (NPAT) of AUD35 million to AUD45 million.

Prior to the announcement the consensus among analysts was revenue of AUD1.06 billion and NPAT of AUD76.1 million. At the midpoint of management’s fiscal 2014 guidance revenue and normalized NPAT would be down 22 percent and 60 percent, respectively, versus fiscal 2013 levels.

Management noted that it expects first-half earnings to be lower than second-half earnings. Ausdrill is a hold.

Grange Resources Ltd (ASX: GRR, OTC: GRRLF) held its 2013 interim dividend steady at AUD0.01 per share. First-half iron ore product sales declined by 37.7 percent, however, and average realized prices were off by 11.4 percent.

Revenue was down 44.8 percent to AUD106.9 million, as NPAT slid 95.4 percent to AUD2.5 million. Hold.

Kingsgate Consolidated Ltd (ASX: KCN, OTC: KSKGF) omitted its final dividend for fiscal 2013 after cutting its interim dividend by 50 percent to AUD0.05 per share.

Output for the first quarter of fiscal 2014 was off 18 percent sequentially to 50,786 ounces, as cash costs surged by 27 percent quarter over quarter to USD1,044 per ounce. The company’s average realized gold price down 8 percent from the fourth quarter of fiscal 2013 and 20.1 percent year over year to USD1,309 per ounce. Hold.

Medusa Mining Ltd (ASX: MML, OTC: MDSMF) reported that output from the Co-o gold mine was 14,502 ounces, short of its 17,000 forecast due to powercell failure at a new mill. Management noted that second-quarter production will be affected as well due to a delay in repairing the powercell.

Medusa omitted its final and its interim dividends for fiscal 2013, although fiscal 2013 revenue was up 28 percent to USD100.7 million and NPAT was up 2 percent to USD50.2 million while first-half revenue was up 28 percent and NPAT grew by 19 percent.

Management is clearly shepherding cash to its key Co-o gold mine development. Buy under USD2.

Oz Minerals Ltd (ASX: OZL, OTC: OZMLF, ADR: OZMLY) reported that production for the third quarter was below forecast, with mined grades 30 percent to 50 percent lower than expected. Management reduced is full-year copper output guidance and raised its cash cost guidance.

Oz declared an interim dividend for fiscal 2013 of AUD0.10, in line with the prior corresponding period. But that was small comfort in the light of an underlying loss of AUD36.1 million for the first half. Net loss after tax was AUD268 million, driven by writedowns of AUD231.9 million at Prominent Hill.

Oz Minerals’ cash pile has dwindled to about AUD550 million from nearly AUD1 billion, but management was relatively upbeat, noting that the worst of the metals slump is over. Hold.

Panoramic Resources Ltd (ASX: PAN, OTC: PANRF), which resumed its dividend with an interim declaration of AUD0.01 per share after not paying a final dividend for fiscal 2012, omitted its final dividend for fiscal 2013.

Nickel-in-ore for the first quarter of fiscal 2014 was 5,404 metric tons, just off from a near-record total of 5,619 metric tons for the fourth quarter of fiscal 2013. Cash costs did rise to AUD5.65 per pound from AUD5.28, though management reiterated its fiscal 2014 production guidance. Buy under USD0.35.

Sedgman Ltd (ASX: SDM, OTC: SGTDF) declared a final dividend for fiscal 2013 of AUD0.02 per share, down from AUD0.065 for the prior corresponding period.

Management forecast a fiscal 2014 first-half loss of AUD6 million to AUD8 million due to weak trading conditions, though its sees positive earnings in the second half of the year. Hold.

Western Areas NL (ASX: WSA, OTC: WNARF) reported that total mine production for the first quarter of fiscal 2014 was 8,290 metric tons of nickel-in-ore at 5.1 percent, the highest grade since the second quarter of fiscal 2012. Unit cash costs were down substantially for a third consecutive quarter to AUD2.28 per pound.

Western omitted its final dividend for fiscal 2013 after cutting its interim dividend by 60 percent compared to fiscal 2012. Buy under USD3.60.

Whitehaven Coal Ltd (ASX: WHC, OTC: WHITF) management forecast output from its mines will rise by 25 percent in fiscal 2014 to 10.7 million metric tons, though it also expects subdued coal prices and the strength of the Australian dollar to persist.

Whitehaven didn’t declare a final dividend for fiscal 2013 after omitting its interim dividend. Buy under USD2.

Consumer Goods

GUD Holdings Ltd (ASX: GUD, OTC: GUDHF, ADR: GUDDY) management guided to a 20 percent decline in fiscal 2014 underlying earnings before interest and taxation (EBIT), as first-quarter sales and EBIT were down relative to the prior corresponding period. Its Sunbeam and Dexion units were major contributors to the shortfall, and the strong aussie is still a headwind.

GUD’s board declared a final dividend of AUD0.26 per share for fiscal 2013, down from AUD0.35 a year ago. Management also declared a special dividend of AUD0.10 per share, finishing up the capital management strategy it announced along with the sale of the Breville unit in February 2012. GUD is a buy for speculators under USD6.50.

Ridley Corp (ASX: RIC, OTC: RIDYF) didn’t declare a final dividend after omitting its interim dividend for fiscal 2013. Management reported a net loss of AUD21.7 million for fiscal 2013. Hold.

Consumer Services

APN News & Media Holdings Ltd (ASX: APN, OTC: APNDF) didn’t declare an interim dividend for 2013 after omitting its final dividend for 2012, as it continues to focus on repairing its balance sheet.

Management reported a net profit of AUD12.8 million for the six months ended June 30, turning from a loss of AUD308.2 million a year ago. Revenue was up 5 percent to AUD426.6 million, helped by AUD31.9 million from asset sales.

The advertising market remains challenged, and debt remains a concern. Sell.

Myer Holdings Ltd (ASX: MYR, OTC: MYGSF) reported total sales for the first quarter of fiscal 2014 of AUD691.1 million, up 0.44 percent over the prior corresponding period, as like-for-like sales ticked up by 0.41 percent. Management noted that trading conditions remain “patchy.”

Fiscal 2013 total sales were up 0.8 percent to AUD3.145 billion, as like-for-like sales rose 0.4 percent. Operating margin improved by 40 basis points to 41.7 percent, but management still reduced the final dividend to AUD0.08 per share from AUD0.09. Buy under USD2.50.

Seven West Media Ltd’s (ASX: SWM, OTC: WANHF) final dividend was flat at AUD0.06 per share.

Fiscal 2013 NPAT excluding items was flat too at AUD225 million on revenue of AUD1.867 billion, though management reported a statutory net loss of AUD70 million on magazine business impairments. Management noted strong TV advertising and forecast low single-digit growth for fiscal 2014. Buy under USD2.

Southern Cross Media Group Ltd (ASX: SXL, OTC: SOUTF) reduced its final dividend from AUD0.05 a year ago to AUD0.045, as it reported net profit after tax of AUD96 million, ahead of guidance of AUD90 million to AUD95 million.

With the final dividend the company’s full-year payout ratio came to 66 percent, in line with company policy. Hold.

Tabcorp Holdings Ltd (ASX: TAH, OTC: TABCF) posted group revenue for the first quarter of fiscal 2014 of AUD503.9 million, up 3.1 percent versus the prior corresponding period.

Reported wagering revenue was up 0.1 percent to AUD385 million, while the Media & International unit grew by 10.1 percent to AUD54.5 million on export of racing and subscriptions.

Tabcorp declared a final dividend of AUD0.08, down from AUD0.11 a year ago. Buy under USD3.35.

Tatts Group Ltd (ASX: TTS, OTC: TTSLF) reported net profit after tax (NPAT) from continuing operations was up 23 percent for the first quarter of fiscal 2014. Management is positive on conditions for the second quarter, which will include the first full period of results from the recently acquired South Australian lottery license.

Tatts’ final dividend for fiscal 2013 was down to AUD0.075 from AUD0.12 a year ago. Buy under USD3.

Financials

QBE Insurance Ltd (ASX: QBE, OTC: QBEIF) cut its 2013 interim dividend by 50 percent, though it was in line with management policy to pay 50 percent of cash profit.

First-half NPAT slide 37.2 percent to USD477 million. Cash profit was down 30.1 percent to USD590 million due to lower investment yields. Hold.

Industrials

Boart Longyear (ASX: BLY, OTC: BOARF, ADR: BLGPY) omitted its 2013 interim dividend. Management reported a net loss for the first half of the year of USD329.4 million versus net income of USD97.7 million a year ago.

Management cut its 2013 EBITDA guidance to the low end of a USD116 million-to-USD159 million range from the low end of a previous range of USD199 million-to-USD271 million. Hold.

Boral Ltd (ASX: BLD, OTC: BOALF) raised its final dividend by 71.4 percent after reducing its fiscal 2013 interim dividend to AUD0.05 per share from AUD0.075. That left the full-year dividend flat at AUD0.11 per share.

Revenue from continuing operations was up 10.5 percent to AUD5.209 billion, though management reported a net loss of AUD212.1 million on AUD328.1 million in impairments and writeoffs. Net income excluding items was up 3.2 percent to AUD104.4 million. Hold.

Bradken Ltd (ASX: BKN, OTC: BRKNF) paid a fiscal 2013 final dividend of AUD0.18 per share, down from the AUD0.215 final dividend it paid for fiscal 2012. Full-year dividends were down 7 percent to AUD0.38.

Management has guided to fiscal 2014 first-half operating EBITDA of “around” AUD85 million, noting “recent” improvement in order intake. The full-year result is expected to be in line with fiscal 2013. Buy under USD5.25.

Emeco Holdings (ASX: EHL, OTC: None) will pay no dividends prior to June 30, 2014, as it focuses on debt reduction in the aftermath of amending covenants on its AUD450 million senior debt facility.

Emeco omitted its final dividend, as fiscal 2013 operating NPAT declined 50.5 percent to AUD35.2 million. Statutory NPAT was just AUD6 million on charges and impairments totaling AUD32.6 million. Management used positive cash flow of AUD60 million to pay down debt. Hold.

UGL Ltd (ASX: UGL, OTC: UGLFF) declared a final dividend of AUD0.05 per share, down from AUD0.36 a year ago as the slowdown in mining activity, delays and execution issues with projects, particularly in power, and general economic malaise

Fiscal 2013 operating revenue declined by 12 percent to AUD4.2 billion, though underlying NPAT of AUD92.1 million was in line with guidance. Management also announced a plan to de-merge its property services business. Hold.

Oil & Gas

Caltex Australia Ltd’s (ASX: CTX, OTC: CTXAF) interim dividend was flat at AUD0.17, as

2013 first-half historic cost profit came in at AUD195 million, up from AUD167 million a year ago.

Replacement cost profit slipped to AUD171 million from AUD197 million. But both historic and replacement figures were at the upper end of guidance. Buy under USD16.50.

Technology

Redflex Holdings Ltd (ASX: RDF, OTC: RFLXF) cut its final dividend by 40 percent after reducing its interim dividend by 33 percent. Fiscal 2013 revenue was down 6.1 percent to AUD137.4 million, as EBITDA slid 27.5 percent to AUD35.4 million.

NPAT of AUD8.6 million missed management guidance of AUD10 million. Sell.

SMS Management & Technology Ltd (ASX: SMX, OTC: SMSUF, ADR: SMSUY) management guided for a decline of 20 percent to 25 percent for fiscal 2014 first-half net income versus the second half of fiscal 2013 due to one-time charges for redundancies and acquisition costs as well as its withdrawal from a contract.

Management expressed confidence in a stronger second half on the contribution of recent acquisitions contribution and a better utilization rate.

SMS declared a final dividend of AUD0.12 per share, down 29.4 percent from AUD0.17 a year ago.

That brought the fiscal 2013 full-year dividend to AUD0.255, 16.4 percent lower than the AUD0.305 paid for fiscal 2012.

Management reported net profit after tax (NPAT) of AUD21.1 million for fiscal 2013, 31 percent below fiscal 2012 largely due to a decline in client demand across a number of sectors. Buy under USD6.50.

Telecommunications

Telecom Corp of New Zealand (ASX: NZT, OTC: NZTCF) has guided to a fiscal 2014 full-year dividend of NZD0.16 per share, provided operating conditions remain stable. That’s in line with the fiscal 2013 dividend, which was down by 27.3 percent compared to fiscal 2012.

Fiscal 2013 revenue declined 8.5 percent to NZD4.189 billion. Adjusted EBITDA of NZD1.04 billion was in line with revised guidance, though NPAT ex-items was down 23.6 percent to NZD236 million. Hold.

The ADR List

We continue to track the How They Rate coverage universe and beyond for Australia-based companies that afford US investors the convenience of ADR investing, either on their initiative or via the effort of an interested financial institution.

Here again is our primer on Australian stocks, US OTC symbols and ADRs.

The great majority of the companies under How They Rate coverage have US symbols, many because they actively seek to raise capital here on their own accord. That means they comply, to varying degrees, with US Securities and Exchange Commission filing requirements for foreign companies and with US accounting principles. Others trade here because a sponsoring institution has effectively created a secondary market for the shares, without the underlying company’s active participation.

Shares traded on US OTC markets bearing a final “F” in their five-letter symbols are basically home-listed shares trading in a market created by and for US institutions. Individuals can buy and sell here, too. Prices basically reflect ASX prices and also reflect changes in the relationship between the US dollar and the Australian dollar. One “F” share represents one ASX-listed share. The dividend you receive in respect of an “F” share is the dividend paid in respect of the ASX-listed share, adjusted for currency effects.

An ADR is a certificate that represents stock of a foreign company. ADRs are listed on US stock exchanges or the OTC Bulletin Board or Pink Sheets. Those that trade OTC have five-letter symbols ending with the letter “Y.” All transactions, including dividend payments, are conducted in US dollars.

One ADR certificate may represent one or more shares of the foreign stock; it can also represent a fraction of a share. For example, one Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) ADR, which trades under the symbol TLSYY, is worth five ordinary shares that trade on the Australian Securities Exchange under the symbol TLS. Australia & New Zealand Banking Group Ltd’s (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) ADR, ANZBY, is worth one Australia-listed ANZ share.

Because many ADRs don’t have a one-to-one ratio between the depositary receipts and the shares of stock, financial ratios are often not included in stock listings. Data in Australian Edge Portfolio tables and How They Rate is derived based on Australian Securities Exchange symbols so is as complete as you’ll find anywhere.

Foreign companies themselves often “sponsor” the creation of their own ADRs. These are called “sponsored ADRs.” There are three levels of sponsorship.

A Level I sponsored ADR is created by a company because it wants to extend the market for its securities to the US. It does not, however, want to register with the Securities and Exchange Commission (SEC) or conform to generally accepted accounting principles (GAAP). Level I ADRs trade on the OTC Bulletin Board or Pink Sheets trading systems, usually but not exclusively by institutional investors. Australia & New Zealand Banking Group’s is a Level I ADR.

Level II and Level III sponsored ADRs must be registered with the SEC, and financial statements must be reconciled to generally accepted accounting principles. A Level II ADR requires partial compliance with GAAP, while a Level III ADR requires complete compliance. A Level III sponsorship is require if the ADR is a primary offering and is used to raise capital for the company. Only Level II and Level III sponsored ADRs can be listed on the New York Stock Exchange (NYSE), the American Stock Exchange or Nasdaq. Telstra Corp sponsors a Level III ADR in the US, meaning it’s actively seeking to raise capital here.

An unsponsored ADR is created by a US investment bank or brokerage that buys ordinary shares on the underlying company’s home market then deposits them in a local custodian bank. This depositary bank then issues shares that represent an interest in the stocks and handles most of the transactions with American investors, serving both as transfer agent and registrar for the ADR.

The shares of the foreign stock held in the custodian bank are called “American Depositary Shares,” although this term is sometimes used as a synonym for “American Depositary Receipts.” Unsponsored ADRs can’t be listed on the major American stock exchanges because they aren’t registered with the SEC and lack other necessary qualifications.

The price of an ADR is determined by supply and demand but will generally track the price of the underlying ordinary share. When dividends are paid, the custodian bank receives it and withholds any foreign taxes, exchanges it for US dollars and then sends it to the depositary bank, which then sends it to the investors.

The US depositary bank handles most of the interaction with US investors, including rights offerings, stock splits and stock dividends. Sponsored ADR investors may receive communications, including financial statements, directly from the company.

Here is a list of companies in the How They Rate coverage universe that have an ADR listing in the US, along with the number of ordinary ASX-listed shares the ADR represents.

Basic Materials          

• Alumina Ltd (ASX: AWC, NYSE: AWC)–One ADR is worth four ordinary shares.
• Aquarius Platinum Ltd (ASX: AQP, OTC: AQPBF, ADR: AQPTY)–One ADR is worth two ordinary shares.
• Arrium Ltd (ASX: ARI, OTC: ARRMF, ADR: OSTLY)–One ADR is worth 20 ordinary shares.
• Atlas Iron Ore Ltd (ASX: AGO, OTC: ATLGF, ADR: AGODY)–One ADR is worth five ordinary shares.
• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–One NYSE-listed ADR is worth two ordinary shares.
• BlueScope Steel Ltd (ASX: BSL, OTC: BLSFF, ADR: BLSFY)–One ADR is worth five ordinary shares.
• Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY)–One ADR is worth five ordinary shares.
• Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–One ADR is worth five ordinary shares.
• Kingsgate Consolidated Ltd (ASX: KCN, OTC: KSKGF, ADR: KSKGY)–One ADR is worth one ordinary share.
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF, ADR: MALRY)–One ADR is worth one ordinary share.
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–One ADR is worth one ordinary share.
• Oz Minerals Ltd (ASX: OZL, OTC: OZMLF, ADR: OZMLY)–One ADR is worth 0.5 ordinary shares.
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–One ADR is worth one ordinary share.

Consumer Goods

• Billabong International Ltd (ASX: BBG, OTC: BLLAF, ADR: BLLAY)–One ADR is worth two ordinary shares.
• Coca-Cola Amatil Ltd (ASX: CCL, OTC: CCLAF, ADR: CCLAY)–One ADR is worth two ordinary shares.
• Goodman Fielder Ltd (ASX: GFF, OTC: GDFLF, ADR: GDFLY)–One ADR is worth 10 ordinary shares.

Consumer Services

• Crown Resorts Ltd (ASX: CWN, OTC: CWLDF, ADR: CWLDY)–One ADR is worth two ordinary shares.
• Metcash Ltd (ASX: MTS, OTC: MCSHF, ADR: MHTLY)–One ADR is worth six ordinary shares.
• TABCORP Holdings Ltd (ASX: TAH, OTC: TABCF, ADR: TACBY)–One ADR is worth two ordinary shares.
• Wesfarmers Ltd (ASX: WES, OTC: WFAFF, ADR: WFAFY)–One ADR is worth 0.5 ordinary share.

Financials

• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–One ADR is worth one ordinary share.
• Commonwealth Bank of Australia Ltd (ASX: CBA, OTC: CBAUF, ADR: CMWAY)–One ADR is worth one ordinary share.
• National Australia Bank Ltd (ASX: NAB, OTC: NAUBF, ADR: NABZY)–One ADR is worth one ordinary share.
• QBE Insurance Ltd (ASX: QBE, OTC: QBEIF, ADR: QBIEY)–One ADR is worth one ordinary share.
• Westfield Group Ltd (ASX: WDC, OTC: WEFIF, ADR: WFGPY)–One ADR is worth two ordinary shares.
• Westpac Banking Corp Ltd (ASX: WBC, NYSE: WBK)–One ADR is worth five ordinary shares.

Health Care

• Ansell Ltd (ASX: ANN, OTC: ANSLF, ADR: ANSLY)–One ADR is worth four ordinary shares.
• Cochlear Ltd (ASX: COH, OTC: CHEOF, ADR: CHEOY)–One ADR is worth 0.5 ordinary share.
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–One ADR is worth 0.5 ordinary share.
• Sonic Healthcare Ltd (ASX: SHL, OTC: SKHCF, ADR: SKHCY)–One ADR is worth one ordinary share.

Industrials

• Amcor Ltd (ASX: AMC, OTC: AMCRF, ADR: AMCRY)–One ADR is worth four ordinary shares.
• Boral Ltd (ASX: BLD, OTC: BOALF, ADR: BOALY)–One ADR is worth four ordinary shares.
• GWA Group Ltd (ASX: GWA, OTC: GWAXF, ADR: GWAXY)–One ADR is worth four ordinary shares.
• Toll Holdings Ltd (ASX: TOL, OTC: THKUF, ADR: THKUY)–One ADR is worth two ordinary shares.

Oil & Gas

• Beach Energy Ltd (ASX: BPT, OTC: BEPTF, ADR: BCHEY)–One ADR is worth 20 ordinary shares.
• Boart Longyear Ltd (ASX: BLY, OTC: BOARF, ADR: BLGPY)–One ADR is worth two ordinary shares.
• Caltex Australia Ltd (ASX: CTX, OTC: CTXAF, ADR: CTXAY)–One ADR is worth two ordinary shares.
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–One ADR is worth 10 ordinary shares.
• Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY)–One ADR is worth one ordinary share.
• Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY)–One ADR is worth one ordinary share.
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–One ADR represents one ordinary share.

Technology

• Redflex Holdings Ltd (ASX: RDF, OTC: RFLXF, ADR: RFLXY)–One ADR is worth eight ordinary shares.
• SMS Management & Technology Ltd (ASX: SMX, OTC: SMSUF, ADR: SMSUY)–One ADR is worth two ordinary shares.

Telecommunications  

• Singapore Telecommunications Ltd (Singapore: ST, ASX: SGT, OTC: SNGNF, ADR: SGAPY)–One ADR is worth 10 ordinary shares.
• Telecom Corp of New Zealand Ltd (ASX: TEL, NYSE: NZT)–One ADR is worth five ordinary shares.
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–One ADR is worth five ordinary shares.

Utilities

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–One ADR is worth one ordinary share.
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–One ADR is worth one ordinary share.