Plato Investment Management has updated its forecasts for ASX 200 dividends, now believing the market will return 4.8 per cent gross yield in 2021.
Managing director of Plato Investment Management Dr Don Hamson said February reporting season saw a number of companies declaring record dividends, with businesses likely to have strong tailwinds in the foreseeable future.
According to the industry expert, traditional banks and mining companies are tipped to lead the way in dividends in 2021.
“Strong profit announcements from the banks are a result of fewer than expected pandemic-related bad debts across the industry, resulting in the unwinding of provisions,” Dr Hamson said.
“Both ANZ and Westpac have been confident enough to write back some of their COVID-related provisions even before JobKeeper ends on March 31.”
“Barring any further outbreaks or deterioration of the economy, we expect even more write-backs.”
The managing director pointed to CBA as the bank most likely to provide stronger dividend repayments following a smaller percentage of profits paid out in the last half.
“Its $1.50 dividend equates to only 67 per cent of earnings and the bank has said its payout ratio is likely to be 70-80 per cent this year, so a stronger second-half dividend is expected.”
“There’s also the possibility management will use excess franking credits to undertake an off-market buyback in the coming year, which will be a lucrative opportunity for retirees in particular,” he explained.
Dr Hamson also noted that strong commodity prices are leading to mining stocks becoming three of the six best dividend payers.
“We think the supply and demand fundamentals for iron ore prices remain solid, and if prices come off $100 per tonne from the highs, these companies still have good profit margins. Management at the big miners also seem to be learning from mistakes about over-investing in new mines, which have impacted dividends in the past,” Dr Hamson said.
“Outside of the banks and miners, it’s the consumer discretionary sector that has been another major contributor to our upgraded forecasts.
“The likes of JB Hi-Fi and Super Retail Group have delivered in spades for investors, and strong sales momentum in the first quarter of this year indicates the retail boom we saw stemming from the pandemic still has some way to go.
“It’s been near impossible for retirees to generate any sort of meaningful income from cash in the bank or bonds for a number of years now, and when dividends were slashed throughout 2020, I think many would have been facing the prospect of drawing down capital to keep the lights on. Thankfully, we’ve now seen a very swift recovery in dividends,” Dr Hamson concluded.
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