Dividends could be cut by a third
ASX200 dividends will be cut by a third over the next 12 months, predicts AMP Capital, which is a larger cut to dividends than during the global financial crisis (GFC).
Dermot Ryan, AMP Capital Australian equities portfolio manager, said although the cuts would be a pain to shareholders this year, it would help companies survive social distancing measures as revenues had dried up.
“The majority of the dividends announced in February have been paid, there have been high levels of franking and up to now it had been a very good financial year for dividends,” Ryan said.
“Banks and real estate investment trusts (REITs) are the main sectors left to pay large dividends before the end of the financial year.
“Both sectors will likely cut dividends sharply in Q2 due to the knock-on effect of rent and mortgage abatements mean less cash and they will need to keep capital to service their own debts as these sectors carry high debt loads.”
As well hitting travel and aviation, the consumer impact had spread to retail, media and gaming, so it was expected those sectors would not pay more this year.
Buybacks were also not spared with Qantas and Viva Energy announcing them, then later cancelling them.
Ryan said shareholders needed to diversify sources of dividends, and focus on balance sheets and cashflows, to help position portfolios ahead of any dividend cuts.
“We are favouring investing in essential services, supermarkets, infrastructure, packaging and hospitals and aged care,” Ryan said.
“We expect telecommunications and service providers also to do well as households increase their mobile and broadband packages and carriers start their 5G capex spending.
“With the Australian dollar at a multi-year low and uncertainty globally, we think our energy, mining and even wine industries will benefit from this new currency tailwind.
“It’s best to think of these dividend cuts like a landlord might, where you perhaps take a temporary drop in rent to keep a good tenant; when activity bounces back so too will dividends.”
AUTHOR
Chris Dastoor
Recommended for you
After introducing its first active ETF to the Australian market earlier this year, BlackRock is now preparing to launch its first actively managed, income-focused ETF by the end of November.
Milford Australia has welcomed two new funds to market, driven by advisers’ need for more liquid, transparent credit solutions that meet their strong appetite for fixed income solutions.
Perennial Partners has entered into a binding agreement to take a 50 per cent stake in Balmoral Investors and appoint it as the manager of Perennial's microcap strategy.
A growing trend of factor investing in ETFs has seen the rise of smart beta or factor ETFs, but Stockspot has warned that these funds likely won’t deliver as expected and could cost investors more long-term.
