The outlook for dividends has improved from previous levels, which is particularly good news for investors in a low-income environment, and there is the potential for further ‘upside surprise’ in certain stocks and sectors, according to Ausbil Investment Management.
One of such sectors is banking as all four major banks, which were among the most sought-after stocks for dividend investors, were forced to cut or suspend dividends in 2020.
“With growth in deposits, a buoyant mortgage lending market and strong balance sheets, we see further recovery in bank dividends occurring over the coming year, albeit with lower payout ratios than before the pandemic,” Michael Price, portfolio manager for the Ausbil active dividend income fund, said.
Also, according to Australian Bureau of Statistics (ABS) data, in 2020 iron ore brought in record annual export revenue of $116 billion, which was up 20.8% on the $96 billion earned in 2019, in a boom year for the resources sector.
“Looking forward, we believe there is potential for upside surprise from both the banking and resources sectors, with plenty of valuable franking credits to be had for investors,” Price added.
“However, an active approach remains important in order to identify those companies that can produce sustainable and growing dividend income.”