An Australian investment manager has tipped that as pandemic volatility is expected to force a 30 per cent reduction in dividends, active management will be critical for income investing.
Plato Investment Management has made the call, noting the reduced payouts will be stock and sector specific.
It has forecast that with the cuts across payouts, gross yield including franking credits from Australian equities will be at around 5 per cent, which Plato has noted is still substantially higher than the returns from cash investments.
But dividends may see greater decreases, others have estimated, with AMP Capital saying the ASX 200 will see cuts of a third or more.
Dr Don Hamson, managing director of Plato, noted although dividends have remained less volatile than share prices, investors have “never been faced with a situation in which entire communities and economies have been brought to a standstill”.
“Significant dividend cuts are likely from the banking sector and it is our belief that smaller banks will be hurt more than larger banks, due to thinner margins and narrower funding avenues,” Dr Hamson said.
“We believe iron ore miners are at the lower end of the dividend cut risk spectrum. Expected stimulus from China will require iron ore and there’s been supply issues in India and Africa which [have] supported prices.
But Plato has expected dividends from miners without exposure to iron ore to be hit along with the consumer discretionary, energy and REITs sectors, particularly retail REITs.
“Telcos and consumer staples should also be able to avoid major dividend cuts,” Dr Hamson said.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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