Invest
ASX dividends to fall by a third or more
Investors could see dividend payments fall by a third or more over the short term, as the fallout from COVID-19 has a bigger impact on dividends than the global financial crisis, an investment manager has warned.
ASX dividends to fall by a third or more
Investors could see dividend payments fall by a third or more over the short term, as the fallout from COVID-19 has a bigger impact on dividends than the global financial crisis, an investment manager has warned.
AMP Capital has made the forecast, saying while shareholders will suffer, the cuts will help companies save money and ultimately help their survival over the long run as businesses recover.
Revenues in the Australian economy are drying up as the tightened restrictions on going outside amid the pandemic keep consumers and workers at home.
AMP Capital Australian equities portfolio manager Dermot Ryan highlighted while the outlook is currently bleak, it is for the short term.
“Remember this crisis will pass. In AMP Capital’s view, it’s prudent to value companies on a mid-cycle three-year basis, so you can calmly look through the short-term pause to find companies that can grow their dividends in normal times,” Mr Ryan said.
“We believe this favours long-term investors. Further, there are pockets of real value on offer in the market now. Investors that can may consider adding selectively.”
Despite a weaker outlook, dividends announced in February have been paid, there have been high levels of franking and, up until now, it had been a good financial year for payouts, AMP Capital reported.
Banks and REITs are the main sectors left to pay large dividends before the end of the financial year, but both sectors are expected to cut their payouts sharply in the second quarter due to the knock-on effect of rent and mortgage abatements. The sectors will need capital to service their own debts as they carry high debt loads.
“The virus outbreak and lockdown response have also dramatically slowed economic activity in sectors such as travel and aviation. The consumer impact has spread to retail, media and gaming, which are unlikely to pay any more dividends this year,” Mr Ryan said.
“Keeping precious working capital is key as companies move to preserve cash by temporarily standing down workers, negotiating rental abatements with landlords and reducing outgoings,” Mr Ryan said.
“It is only reasonable that dividends are crimped to preserve cash, too, particularly as debt costs for non-investment grade companies spike.”
Companies that have strong balance sheets may still have the ability to pay dividends, but AMP Capital has recommended management to make “prudent decisions” in allocating that cash and to prioritise the long-term operations of their company.
Buybacks have not been spared, with both Qantas and Viva Energy announcing buybacks, only to later cancel them.
However, while dividends lag with activity, capital raisings may be a “happy hunting ground for new equity investments”. Mr Ryan has said investors should look for companies with fixed balance sheets and set up for an upswing in profits and dividends ahead.
“Remember, this is transitory and the crisis will pass and profits and dividends will bounce back,” Mr Ryan said.
“Shareholders could consider valuing companies on a mid-cycle three-year basis so they can calmly look through the short-term pause to find companies that can grow their dividends in normal times.”
The crisis will favour long-term investors, he said, particularly if they’re able to select equities with “pockets of real value in the market”.
AMP Capital has favoured investment in essential services, supermarkets, infrastructure, packaging, hospitals and aged care.
It also expects telecommunications and service providers 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,” Mr Ryan said.
Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more
Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more
Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more
Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more
Stock market
Facebook debuts new name
Zuck gets meta. ...Read more
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more
Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more
Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more
Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more
Stock market
Facebook debuts new name
Zuck gets meta. ...Read more
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
