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
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
