Dividend policy shows benefits of diversification
The potential consequences of Labor’s dividend franking policy highlight the need for income-seeking investors to diversify away from the big banks and Telstra, according to DNR Capital.
Regardless of the merits or otherwise of the policy, investors looking for yield should consider diversifying within Australian equities to seek strategies focussed on tax-advantaged, reliable and growing income generation.
Currently, such investors tended to focus on dividend pay-outs. The concentration of exposure to the big four banks and Telstra, which account for around 40 per cent of the ASX200 dividends paid, showed this.
The fact that a “reasonable income and franking benefits” were delivered from these stocks hid the fact that, over the 2017 calendar year, the five companies actually delivered investors negative returns, according to portfolio manager of the DNR Capital Australian Equities Income Portfolio, Scott Kelly.
Diversified and income-focussed funds however, could offer stronger overall income.
Kelly said that investors should consider diversification into other equities should Labor prevail at the next election.
“Before investors flock toward higher risk asset classes that, in our opinion, have stretched valuations, for example, unlisted and listed property, infrastructure and utilities, they could consider the alternatives for generating income,” he said.
“We believe local companies that fit this bill include Woolworths, Suncorp, Brambles, and IPH Limited and are holding them in our portfolio in preference to bond proxies and the banks.”
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