Look for more than dividend yield
Investors need to look beyond dividend yields in terms of getting their allocations appropriately positioned this year, according to Tyndall Asset Management head of Australian equities Bob Van Munster.
Assessing the year ahead, Van Munster said dividend yields would continue to be a major theme in 2013, but investors needed to understand that there was more to achieving good returns than simply chasing high-yielding companies.
"Overall, the fundamentals remain attractive for sustainable dividend yields from Australian shares. Gearing levels are at 30-year lows, pay-out ratios are conservative at around the long-term average of 60 per cent, and the Australian economy remains resilient - all key ingredients for good quality companies to continue paying dividends."
The weight of money and the ongoing attractiveness of dividend yields, compared to cash rates and bond yields, should assist the share market as a whole, Van Munster said.
However he said the market was currently pricing in further interest rate cuts in 2013, which would encourage investors to find higher returns by moving into higher risk assets, and this would continue to support the market.
He also warned that investors should be mindful that there could be traps for the unwary in simply chasing high-yielding stocks.
"The dividend yield is a function of the stock's dividend and its price, and a high dividend yield could simply indicate that the stock is cheap, and cheap for a reason.
"For instance, deteriorating businesses can often have a high dividend yield that proves to be an illusion," Van Munster said.
"Therefore picking the highest yielding stocks without conducting thorough due diligence can lead to substantial underperformance."
Recommended for you
Data and technology provider Novigi has acquired Iress’ superannuation consulting and managed services business from Apex Group.
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
