It may have been a record year for dividends but investors should avoid ‘squatting’ among the largest payers or risk missing out on growth opportunities.
Speaking to Money Management, Max Cappetta, chief executive and senior portfolio manager at Redpoint Investment Management, said this year had been overly high thanks to iron ore miners.
“2021 had the highest dividend payments in ASX [Australian Securities Exchange] history, and not just because of the pandemic, the bulk came from iron ore miners which paid out $30 billion, some six times more than four years ago,” he said.
“Next year we see solid dividend growth from miners but less than last year. We need to see a pickup in banks which is usually a big payer and a continuation of growth from other areas and then we could see a similar number to this year.
“We do still like iron ore miners as they seem to be stabilising and sentiment will improve, they have fantastic cashflow which will flow through to dividend payouts.”
Commonwealth Bank, Woolworths and Westpac had already also committed to share buybacks and Cappetta said he expected BHP would follow suit as companies had cash on their balance sheets that could be returned to shareholders.
However, while dividends were a valuable income source for investors, Cappetta cautioned about focusing too much on those which paid the most dividends.
“You shouldn’t only focus on those stocks which will pay out the most dividends, don’t squat on those large dividend payers as this may offer low growth,” he said.
“You should be looking around in different sectors, different dividend payment dates and for different dividend yields. You need broad exposure or you may lag behind, we hold some stocks which don’t even pay out dividends yet but we are hopeful they will in the future.”
