Look overseas for dividend opportunities: Epoch
Investors can still find income opportunities by searching for investment globally rather than just in Australia, according to Epoch Investment Partners.
Earlier this year, UBS said it expected Australian dividends could be cut by more than $20 billion, a larger amount than during the Global Financial Crisis (GFC).
However, there were still high-quality equities available to provide income if investor looked in the global space, particularly in the technology, healthcare and utilities sectors where Australian companies had a smaller presence.
Damien McIntyre, chief executive of GSFM which distributed Epoch’s retail funds in Australia, said Australian investors tended to focus too much on domestic companies and ignore the opportunities overseas.
“Many local investors – perhaps focused too much on the benefits of franked dividends – are unaware of the diversification benefit and potential of comparable dividend income gained by investing globally,” he said.
“In this new investing environment, investors would do well to focus some of their attention on companies outside of Australia, those with global brands operating across multiple geographies. Investors should look to companies with solid balance sheets and resilient earnings and cashflows – such as tech, healthcare, and utilities. A greater universe of companies fitting this profile is found outside of Australia.”
While an attractive yield was important, investors should not assume the stock with the highest yield was the best and should carefully identify the fundamentals of the business and whether it could survive the downturn.
“A high yield could be the product of a one-time windfall or a collapsing stock price which may not be sustainable. To identify dividend streams that are sustainable and growing it is important to understand what drives free cashflow at individual companies, and then look for companies that can grow their operating cashflow by at least 3% annually,” McIntyre said.
“Equally important is determining whether the company has a capital allocation policy that is disciplined, transparent and shareholder friendly.
“Not all businesses will face the same degree of stress from the government restrictions on social interaction, and some will continue to generate material cash flows. Others entered this period with ample liquidity to withstand a temporary demand hit.”
AUTHOR
Laura Dew
Recommended for you
Australian fund managers are actively seeking to launch Cayman versions of their funds to attract offshore flows, with Regal Partners set to launch its latest offering this month.
As private markets gain traction in Australia but only a limited pool of talent is available, three recruiters explore whether fund managers should consider looking overseas to find top talent.
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
