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Don’t be a dividend-chasing retiree

Scott Kelly

Retirees should be looking to the fundamentals in a low cash yielding environment despite the temptation to chase the highest possible dividends, an expert has said.

In a conversation with Nest Egg, DNR Capital’s Australian equities income portfolio manager Scott Kelly said that he believes investors need to be looking at the three to five-year horizon for equities and diversify their investments, instead of chasing short-term yields.

Especially in the Australian equity space, Mr Kelly said “retirees should be looking at quality businesses at attractive valuations that have sustainable and growing dividends with after-tax benefits in light of the ongoing franking policy”.

Franking credit benefit

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Mr Kelly noted retirees as being up to 30 per cent better off with the Coalition holding power, since controversial franking credit reforms have been put on the backburner.

He said the worst case scenario, had a franking credit reforms occurred, had the potential for some retirees to lose up to 30 per cent of their super fund investments.

“We certainly saw evidence of investors changing behaviour ahead of the election in the anticipation that Labor would get in,” he observed.

In terms of reducing exposure to those stocks, Mr Kelly said a number of people were putting their investments “into other higher-yielding stocks that didn’t have franking attached, looking at small caps or offshore investments”.

Yet others “just kept it as cash on the sidelines”, he continued.

Key tips for an upcoming retirement

According to the portfolio manager, investors should be mindful of three things as they move towards retirement:

1. People are living longer, which means as a retiree, you will need additional funds.
2. In a lower yielding environment, be sure to diversify! The potential of lower interest rates persisting means retirees need to consider if their investment strategy will sustain their lifestyle.
3. Seek professional advice before making the retirement leap.

This email address is being protected from spambots. You need JavaScript enabled to view it.

Don’t be a dividend-chasing retiree
Scott Kelly
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Cameron Micallef

Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets. 

Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.

You can contact him on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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