Fund manager Allan Gray is forecasting near-zero yields for the majority of ASX-listed companies in the future, although consumer staples may be able to buck this trend.
The probability of minimal dividends made it difficult for investors who were relying on them for income, especially those in or approaching retirement.
Chief investment officer, Simon Mawhinney, said: “Many companies have experienced big losses and won’t be able to pay a dividend without some sort of capital impost, or elevating their gearing. In April we had APRA writing to the banks and insurers requesting a prudent reduction in dividends and a materially reduced level of returns to shareholders over the coming months.
“There are some companies whose earnings have not been badly impacted, if not enhanced, by COVID-19 and they will be in a position to maintain or even enhance dividends. This includes the likes of Woolworths, Coles and other staples.”
Coles has performed particularly strongly since the start of the year with shares rising 14% while Woolworths had risen 1.8% versus losses of 9% by the ASX 200.
Share price performance of Coles and Woolworths versus ASX 200 since start of the year to 23 June 2020
There was also already a wide gap between defensive stocks such as utilities and cyclical stocks such as materials or banks but this was flouting the trend seen globally where people were moving into cyclically-depressed stocks.
“Globally, we have seen tentative signs of this shift into cyclically-depressed stocks beginning. This is not yet true in Australia, with many cyclically-exposed sectors lagging the price performance of their overseas counterparts.
“Despite earnings and dividend headwinds, we believe investors with a firm focus on the fundamentals and the long term will benefit from mispricing opportunities currently in the market. These opportunities are in those companies that typically have strong balance sheets and excellent asset bases, but which can be bought at extremely depressed prices given earnings headwinds.”