Where to find dividends in a low-rate environment

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September 17 2020
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Australian investors who are income-focused are still able to find strong dividend-paying stocks, but the market is changing, an expert has said.

Where to find dividends in a low-rate environment

During a Pinnacle investment summit, Plato Investment’s managing director, Don Hamson, explained that despite the rhetoric around the big four banks, dividends income continues to outperform other investment options.

“In a relative sense, we think equity income is still very good, despite the 30 per cent cut in the market,” Mr Hamson said.

Mr Hamson pointed out that investors who have purchased shares in traditional high-dividend-paying stocks, including the big four banks and the telecommunications sector, would have underperformed the market.

“It has been a real struggle for those investors. Not only are they seeing their dividends cut, they are also seeing their returns to underperform the market,” he said.

Mr Hamson explained that investors in this sector are unlikely to see strong growth for a number of years.

“They have the impact of reduced debts or bad debts coming from COVID-19, and at the same time APRA has come out and said you can pay out no more than 50 per cent of your earnings in dividends.

“If your earnings are depressed and your payout ratio is lower, then your dividend is going to be much lower,” Mr Hamson explained.

While many traditional dividend heavyweights continue to struggle, at the same time the market is correcting, with new sectors emerging for dividend-chasing investors.

“Luckily, those iron ore miners are taking their place. Arguably, we are talking about the iron ore miners becoming the new banks or cash cow on the market,” Mr Hamson said.

“In particular, Rio, BHP and pure play iron ore miner Fortescue. They have doubled their income in the past three years.

“While it is an incredibly small base, there’s little gold stocks that have significantly increased their dividends. In fact, gold’s proportion of the market’s income has almost tripled over the past three or four years.

Mr Hamson also told investors that it is not just the miners who are growing their dividend income, with retail also emerging as a dividend-paying stock.

“While a lot of retailers are struggling, some retailers are doing really really well.”

“There might not be a sausage sizzle at Bunnings anymore, but Wesfarmers sales are sizzling with Bunnies and OfficeWorks.

“As is JBHI-Fi, we are all resetting the home office and their sales are really going well, leading to JBHI-Fi doubling their dividends.

“And, of course, we all know about the sales of Woolies and Coles that are doing well,” Mr Hamson concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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