Five Stocks to Weather the Storm and Grow Your SMSF

This article highlights five stocks well-positioned to withstand market volatility and strategies to navigate uncertainty effectively. While downturns can be unsettling, reacting impulsively often leads to missed opportunities. Instead, prioritizing high-quality stocks with strong fundamentals, resilient business models, and a track record of steady earnings can provide stability in uncertain times. Additionally, stocks with high dividend yields offer consistent returns, helping to offset market fluctuations. Since markets inevitably recover, maintaining a long-term perspective is crucial. In this article, we share key insights on managing volatility and introduce five stocks worth considering for your portfolio, offering both solid growth potential and reliable high dividend yields. What to Do When Shares Are Falling: Focus on Quality Stocks and Income Opportunities It’s easy to feel worried when share prices start to fall, especially when investments take a dip. But panicking and making quick decisions can often lead to more harm than good. Instead of stressing over short-term drops, now could be the perfect time to focus on quality stocks, particularly those with strong fundamentals, high dividend yields, and solid growth potential. When the market gets volatile, the urge to sell off shares often arises, fearing further declines. But as legendary investor Warren Buffett says, “Embrace what’s boring, think long-term, and ignore the ups and downs.” It’s easier said than done, but it rings true. Investing is about the long game, and while short-term fluctuations can feel unsettling, they don’t change the fact that a well-run company remains a good investment. Market ups and downs are just part of the ride. While these changes can be unnerving, they’re natural, and over time, history shows that markets have always bounced back from downturns. Keeping that perspective is important. The Power of Staying the Course When markets dip, it’s tempting to focus on share prices, constantly checking them. However, stepping back and taking a broader view can be more effective. Markets may fluctuate, but they’ve weathered far worse, from recessions to world events, always bouncing back. This underscores the value of maintaining a long-term perspective. Additionally, unless shares are sold, a drop remains theoretical. The same shares are still owned, so unless immediate funds are needed, holding on and waiting for recovery is often the best option. Focus on Quality Stocks In times of uncertainty, quality becomes crucial. Focusing on companies with strong fundamentals, solid business models, and a proven ability to generate consistent earnings increases the likelihood of a quick recovery once the market stabilizes. For those seeking income, companies offering high dividend yields are worth considering. High dividend stocks are often a great choice during market turmoil, as they provide reliable income despite falling share prices. These stocks offer stability and predictability for income-focused investors. Companies with solid growth potential should also be part of the strategy. Those with a competitive edge in their industries are well-positioned for strong recovery when the market improves. Combining dividend income with growth potential can balance both short-term and long-term investment goals. Diversification remains key to managing risk. A well-diversified portfolio, spread across various sectors, industries, and asset classes, helps cushion the impact of market volatility. Spreading investments reduces the effects of fluctuations and provides greater stability. Dollar-Cost Averaging: A Smart Way to Manage Volatility For those uncertain about when to invest or how much to buy, dollar-cost averaging can reduce pressure. By investing a set amount regularly, regardless of market conditions, the temptation to time the market perfectly is eliminated. Over time, more shares are purchased when prices are lower, helping to lower the average cost of investments. Market downturns are undoubtedly stressful, but staying focused on long-term goals remains essential. Sticking with quality stocks, especially those offering high dividends and growth potential, positions investors better to ride out volatility. Diversifying the portfolio reduces risk, and dollar-cost averaging helps ease the uncertainty. Looking Ahead: Stock Opportunities Now, let’s take a look at five stocks we’ve shortlisted for you that are well-positioned to thrive in this environment. These companies not only have strong fundamentals and solid dividend yields, but they also have great growth potential. In other words, they’re ready to weather the storm and capitalize on future opportunities as the market recovers. Tamawood Limited (ASX: TWD) – Dividend Yield: 7.27% - 100% Franking We see Tamawood Ltd (ASX: TWD) as a standout choice for long-term income investors, thanks to its 7.27% fully franked dividend yield, strong financials, and debt-free balance sheet. Despite the ups and downs of the housing market, Tamawood has consistently rewarded shareholders, making it a reliable income stock. Strong Dividend Yield and Shareholder Returns Tamawood’s dividend yield is well above the market average, outpacing the bottom 25% threshold of 2.6%–2.7% and even exceeding the top 25% level of 6.2%–6.3%. The fully franked status makes it even more appealing for Australian investors looking to maximize after-tax returns. The company has a decade-long track record of paying dividends, demonstrating its commitment to shareholders. With the Dividend Reinvestment Plan (DRP) back in place, investors can automatically reinvest their dividends to compound returns over time. The board has also indicated plans to restore final dividend payments in December 2024, bringing Tamawood back to a twice-yearly dividend cycle. Financial Strength and Profitability Tamawood’s profit before tax jumped 167.5% in FY24, reaching $8.08 million, compared to $3.02 million in FY23. That kind of growth is impressive, especially in a challenging market. On top of that, the company’s cash reserves increased to $6.11 million from $5.23 million, giving it a solid financial cushion. Revenue was up 9.56% in H1 FY24, while net profit climbed 4.52%, reflecting steady demand for Tamawood’s home construction services. The company’s Project DeRisk system, which helps manage costs and adjust pricing in real time, has been key to protecting profit margins despite supplier cost fluctuations. Competitive Advantages and Operational Strength Tamawood has also taken steps to secure its supply chain through the acquisition of Astivita Pty Ltd, ensuring a steady flow of materials like tapware, solar systems, and appliances. This move has helped reduce supply disruptions and keep projects on track. Additionally, Tamawood benefits from long-standing relationships with subcontractors and suppliers, many of whom have worked with the company for over a decade. This stability helps keep costs predictable and operations running smoothly. Looking Ahead There are some broader market factors to watch, including the Queensland state elections, inflationary pressures, and land supply constraints, which could impact housing demand. But with strong cash reserves, a debt-free balance sheet, and disciplined cost management, Tamawood is well positioned to navigate these challenges while continuing to reward investors. From our perspective, Tamawood is a compelling long-term income stock. Its 7.27% fully franked dividend yield, solid financials, and consistent shareholder returns make it an attractive pick for those seeking reliable income in a competitive market. Servcorp Limited (ASX: SRV) – Dividend Yield: 4.93% - 10% Franking Servcorp Limited (ASX: SRV) stands out as a highly attractive long-term income stock with solid growth potential. Here’s why we think it’s a compelling choice for investors looking for both income and growth. Servcorp has really impressed with its profitability. The company boasts a return on equity (ROE) of 24%, well above the industry average of 6.1%. This level of profitability has fuelled impressive net income growth of 19% over the past five years, outpacing the sector’s average of 11%. In the first half of FY25, Servcorp reported a remarkable 76% increase in statutory net profit after tax, bringing in $34.6 million. The company also saw its profit margin expand to 21%, up from 13% last year, showing that it’s able to control costs effectively while charging a premium for its services. One of the biggest draws for income-focused investors is Servcorp’s dividend yield, which is in the range of 4.3%–5%. The company has a payout ratio of 47.1%, meaning it’s paying out less than half of its earnings, leaving plenty of room for reinvestment. The interim dividend for FY25 was $0.14 per share, and we’re expecting total dividends for the year to be at least 28.0 cents per share. This consistency in dividend payouts speaks to the company’s ability to maintain financial stability while still rewarding shareholders. Looking ahead, we think Servcorp will reduce its payout ratio to around 40% by FY26, which is in line with its goal of balancing steady dividends with funding growth initiatives. Growth Opportunities Servcorp’s global expansion is a major growth driver. In the first half of FY25, the company opened four new locations, and they’re planning to add five more floors over the next year. On top of that, the company is making significant investments in technology, including AI-driven solutions and facial recognition check-ins. These upgrades should make operations more efficient and improve the customer experience, helping Servcorp stay ahead of the competition. We’re particularly excited about the Middle East, where Servcorp has established a regional headquarters in Riyadh. The company is also considering listing its Middle East and European operations in late 2025, which could unlock a lot of value for shareholders. The Middle East is a high-growth region for flexible workspaces, and Servcorp is well-positioned to take advantage of that demand. Strong Financial Position Servcorp is in great financial shape, with $120 million in cash and investments as of December 2024. This gives the company plenty of flexibility to reinvest in its business and return capital to shareholders. For FY25, we’re expecting the company to generate between $61 million and $65 million in underlying net profit before interest and tax (NPBIT), with free cash flow surpassing $75 million. This solid financial base should support Servcorp’s growth plans and its ability to keep paying dividends. Looking to the future, we’re forecasting 22.7% growth in earnings per share (EPS) for FY26, with revenue expected to grow by 5.2% annually over the next three years—far above the sector’s average growth rate of 1.7%. Competitive Advantages and Valuation What really sets Servcorp apart is its brand strength and pricing power. The company has built a reputation for premium services, targeting high-end corporate clients, which helps protect its margins even in a competitive market. We also see good value in Servcorp’s stock at its current price. Moreover, we believe its solid earnings growth, attractive dividend yield, and future growth prospects make it a solid long-term investment. All in all, we think Servcorp is an excellent choice for long-term income-seeking investors. The company offers a solid dividend yield of 4.3%–5%, backed by strong profitability and a sustainable payout ratio. Its global expansion, particularly in the Middle East, along with investments in technology, provides plenty of upside potential. With a strong balance sheet, solid earnings growth, and a focus on premium clients, Servcorp looks set to continue delivering strong returns for shareholders. For those looking for a mix of reliable income and growth, we see SRV as a top pick. SHAPE Australia Corporation Limited (ASX: SHA) – Dividend Yield: 6.38% - 100% Franking SHAPE Australia Corporation Limited (ASX: SHA) remains a top pick for long-term investors. The company combines a solid dividend yield with impressive growth potential, making it a strong option for those seeking both reliable income and future upside. One of the big reasons SHA stands out is its attractive 6.3% dividend yield. For income-focused investors, this is a great way to generate steady cash flow. The company’s 91% payout ratio signals that they’re committed to paying dividends, while still leaving room to reinvest in the business. This is especially reassuring considering SHA’s debt-free balance sheet, which offers plenty of flexibility without the worry of debt obligations. Plus, SHA offers 100% franking credits, which means Australian shareholders can benefit from enhanced after-tax returns. In today’s low-interest-rate environment, a fully franked dividend like this is a great way to add extra value to your portfolio. Growth Catalysts at Play While the dividend is a key selling point, SHA also has strong growth potential. The company’s $480 million record backlog gives it plenty of visibility into its revenue for FY25, and with a conservative approach to recognizing revenue, there’s a lot of confidence that they’ll meet their targets. On top of that, SHA has a proven track record of executing projects smoothly, with a 9.98% gross margin for the trailing twelve months (TTM) and a strong focus on zero defects on 90% of FY24 projects. Another growth driver is SHA’s sector diversification. The company operates in stable sectors like defence, education, and healthcare, which helps shield it from economic fluctuations. With the Australian government continuing to focus on infrastructure investment, SHA is well-positioned to capitalize on this policy-driven demand. Alignment with National Priorities SHA is in a great position to benefit from Australia’s national priorities, especially when it comes to infrastructure, construction, and sustainable practices. With the government increasing investment in sectors like defence, healthcare, and education, SHA stands to gain from this trend. Additionally, the company is expanding into new regions, including the Gold Coast, Newcastle, and Tasmania, which are all showing positive results. This growth, along with its strong presence in non-office sectors, helps SHA remain resilient during uncertain times. Financial Health Is Strong SHA’s financial position is one of its strongest points. The company’s debt-free balance sheet and 0% debt/equity ratio provide a sense of security, making SHA an even more attractive option for investors. The company’s price-to-sales ratio of 0.3x shows that it’s undervalued compared to its peers, which could offer potential upside for those looking for a good deal. Looking at their recent half-year results for FY25, SHAPE delivered record revenue of $479.0 million, up 15% from the previous period. On top of that, net profit after tax (NPAT) jumped 26% to $9.4 million, showing the company’s ability to generate strong profits while growing its revenue base. These results give investors’ confidence that SHA can continue to deliver solid returns. Final Thoughts SHAPE Australia Corporation Limited (ASX: SHA) is an excellent choice for long-term investors. With its solid 6.7% fully franked dividend, strong record backlog, debt-free balance sheet, and undervaluation compared to peers, SHA offers a mix of income and growth potential. The company’s diversification into stable sectors, its strong financial health, and its alignment with government priorities position it well for the future. For those looking to build wealth over time, SHA offers a compelling combination of income and growth. It’s an investment that combines the best of both worlds, consistent returns today and strong growth prospects going forward. GR Engineering Services Limited (ASX: GNG) – Dividend Yield: 7.14% - 100% Franking GR Engineering Services Limited (ASX: GNG) really stands out as a solid long-term income stock, especially for those looking for both reliable dividends and growth potential. As of March 2025, we’re confident in its ability to deliver strong returns, thanks to a combination of factors that make it an attractive investment. One of the first things that grab our attention about GR Engineering is its consistent and reliable dividend payouts. For HY25, the company declared a 10.0 cents per share fully franked interim dividend, up from 9.0 cents per share in the previous year. This increase indicates that GR Engineering is not only capable of generating strong earnings but also committed to rewarding shareholders. The dividend yield for FY24 came in at around 7.57%, and this has been consistent in recent years, making it a go-to for income investors. On top of that, the company’s total shareholder return (TSR) over the past five years has been an impressive 317%, thanks to a mix of dividends and capital appreciation. All these factors add up to a very solid case for GR Engineering as a reliable income stock. Financial Resilience and Cash Position Another major positive for GR Engineering is its ability to generate strong cash flow. For HY25, the company saw revenue jump 45% year-on-year to $272.1 million, while EBITDA grew by 53% to $34.5 million. This growth shows that GR Engineering is operating at a high level and taking full advantage of its ongoing projects. With $111.8 million in cash and $56.1 million in net operating cash flows, the company is in a strong financial position, with zero debt. This strong cash position, paired with low capital intensity and stable revenue, makes GR Engineering a reliable and financially secure company that can continue to pursue growth opportunities while maintaining its commitment to shareholders. Operational Growth Drivers The company’s growth isn’t just about solid numbers; it’s also about its strong operational foundation. GR Engineering has secured key contract extensions with energy companies like Santos, providing operations and maintenance services in areas like the Cooper Basin and Surat Basin. These long-term contracts enhance the visibility of future earnings, ensuring that the company has a steady stream of revenue coming in. Additionally, GR Engineering’s subsidiaries, Mipac and Paradigm, have been busy providing automation and digital solutions to major players in the mining sector, including BHP and Rio Tinto. This focus on automation and technological innovation ensures recurring revenue and positions GR Engineering well for long-term growth. The company is also strategically positioned to benefit from the clean energy transition. As demand for critical minerals like lithium and nickel rises to support renewable energy technologies, GR Engineering’s involvement in processing and infrastructure projects within these industries gives it a strong growth outlook. Market Sentiment and Valuation Despite a solid performance in Q4 2024, where GR Engineering’s share price rose by 36%, the stock still seems undervalued relative to its growth prospects. It currently trades at a price-to-earnings (PE) ratio of 10.8x for FY24e, which is below the industry average. This suggests that the market has yet to fully price in the company’s strong earnings growth. With earnings per share (EPS) growing at a 34% compound annual growth rate (CAGR) compared to a 23% annualized return for the stock over the last five years, we see a real opportunity for the stock to re-rate as the market catches up to its growth. We’re also impressed by GR Engineering’s management, led by Tony Patrizi. The company has demonstrated strong operational excellence and a commitment to safety, with a very low injury rate of just 2.11% in FY24. This focus on both performance and employee well-being speaks to the company’s overall high standards. The company also has a smart approach to risk management. By maintaining a diversified client base and a broad project pipeline, it mitigates risks tied to specific sectors or market downturns. This balanced approach ensures that GR Engineering can weather market volatility while continuing to execute complex projects in key industries like energy and mining. All in all, we think GR Engineering is a great long-term income stock that offers the best of both worlds: a solid dividend yield and strong growth potential. The company’s ability to generate cash, maintain a robust balance sheet, and tap into high-growth sectors like clean energy and automation positions it for long-term success. With its consistent dividends, impressive cash flow, strong project pipeline, and an undervalued share price relative to its earnings growth, GR Engineering is a standout in the income investment space. For those looking for both income and potential capital appreciation, this stock should definitely be on your radar. Embark Early Education Limited (ASX: EVO) – Dividend Yield: 8.00% - 100% Franking Embark Early Education Ltd (ASX: EVO) is a standout long-term income stock, thanks to its strong dividend yield, solid financial footing, and steady demand in the early childhood education sector. EVO offers an 8% fully franked dividend yield, well above market averages. With a payout ratio of 63%, there’s a good balance between rewarding shareholders and keeping finances in check. Recent dividend payments, including a fully franked 1.5 cents per share quarterly payout, show the company’s ongoing commitment to income investors. Financial Strength and Stability Even with some revenue challenges, EVO maintains solid net margins and steady earnings. A low debt-to-equity ratio of 4.5% keeps leverage manageable, and stable free cash flow means dividends should remain reliable. Plus, after selling off its New Zealand operations, EVO is now debt-free, giving it more flexibility for future growth. A Strong Position in a Resilient Sector With 24 childcare centres under well-known brands, EVO operates in a sector that tends to hold up well even when the economy slows. Government support and subsidies provide an extra layer of stability, making this a business with dependable revenue streams. Attractive Valuation and Solid Returns EVO is currently undervalued with a P/E ratio between 13.4x–15.3x and a P/S ratio of 1.7x. It’s also been a strong performer, delivering a 25% return over the past year, outpacing both its sector and the broader market. With an 8% fully franked dividend yield, strong financials, and a solid market position, EVO is a compelling option for income-focused investors. We believe its combination of steady cash flow, smart management, and consistent shareholder returns makes it a stock worth considering for the long haul.