Investors need to stock pick for better dividends

Investors will need to reconsider their income strategy for the next 12 months, with Australian equities expected to provide superior income compared to other asset classes, however when it comes to dividends, it will be definitely a stockpickers’ market, according to Plato Investment Management’s managing director Don Hamson. 

He warned that retirees relying on so-called safe assets, such as cash, bonds and term deposits would not be able to pay the bills and he expected the cash rate to remain close to zero for at least the next two years. 

“Fortunately, for retirees, dividends actually remain relatively strong. Reporting season has presented some better than expected results for dividend income in parts of the market and retirees can benefit from franking credits if their share portfolios are managed on a tax-effective basis,” Hamson said. 

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In particular, iron ore and gold miners as well as consumer staple and some discretionary retailers whose sales had risen since March were likely to deliver reliable income for investors in the coming 12 months.   

“When it comes to dividends it’s a stockpickers market. We’re looking at generating gross income of around 7% including franking credits from Australian equities in the next 12 months because we’re highly active and have been able to rotate into the companies that have emerged as sustainable dividend payers, if you’re active you can still get strong yield,” Hamson said. 

“We maintain an extremely positive outlook on Australia’s iron ore miners, and iron ore prices have continued to hold up well through the pandemic. The world, particularly China, will need to spend big on infrastructure to recover from this pandemic induced recession and infrastructure generally requires steel made from iron ore.” 

According to Hamson, iron ore miners would become now the ‘new banks’ for Australian investors who had traditionally relied on the big four banks for income and dividends. 

“The banks are an example of why we believe simply investing in the index for income right now is futile and the case for active and tax-effective portfolio management has never been stronger,” Hamson concluded. 

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