Don’t worry about dividends: Stocks still going strong

By Grace Ormsby

September 01 2020
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Dividends are still up for grabs for active investors willing to wade through the major headlines and an abundance of market negativity, an investment expert has flagged.

Plato Investment Management’s managing director, Dr Don Hamson, has observed dividends as remaining “relatively strong”, with reporting season having presented “some better than expected results for dividend income in parts of the market”.

It’s why he’s urging investors to look beyond the headlines when considering their income strategy over the next 12 months.

“Fortunately, for retirees, dividends actually remain relatively strong,” Dr Hamson stated.

“Retirees can benefit from franking credits if their share portfolios are managed on a tax-effective basis,” he explained.

“We’ve heard a significant level of hyperbole about the demise of dividends since the COVID-19 pandemic took hold, but the truth is, in a relative sense, gross equity incomes look even better as returns on cash products continue to diminish.”

According to the managing director, it’s iron ore, gold miners, consumer staple and some discretionary retailers that are likely to deliver reliable income for investors over the coming months, with many of these sectors experiencing increased sales since the pandemic’s early days in March.

“Traditionally, Australian investors have relied on the big four banks for income, but this paradigm has now well and truly shifted,” Dr Hamson acknowledged.

“In fact, right now, I would say iron ore miners are the new banks when it comes to dividends,” he continued.

Highlighting how iron ore prices have continued to hold up well through the pandemic, the managing director said “the world, particularly China, will need to spend big on infrastructure to recover from this pandemic-induced recession, and infrastructure generally requires steel made from iron ore.”

Plato also holds a strong opinion of gold: “We anticipate Australia’s gold miners will also continue to perform well on the back of global economic concerns and the immense amount of money printing being undertaken by the US Federal Reserve.”

In addition, consumer staples providers such as Woolworths and Wesfarmers are also expected to generate sound yields for investors in the coming 12 months, following strong performances throughout the worst of the pandemic.

Dr Hamson considers the current marketplace “a stock pickers market” – stating there’s still plenty of opportunity for active investors to achieve a strong yield.

The managing director said the same cannot be said for retirees who are relying on “so-called safe assets” at this time, such as cash, bonds and term deposits.

These retirees “simply won’t be able to pay the bills”, he warned, simultaneously forecasting the cash rate to remain close to zero for at least the next two years.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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