With a number of companies slashing their dividends, Aussie investors seeking income should be looking overseas.
Record low-interest rates were hitting income before the COVID-19 pandemic. And with Westpac and ANZ deferring dividend decisions – and several other companies following suit – Australians are being left with even fewer options for income investing.
“In this new investing environment, investors would do well to focus some of their attention on companies outside of Australia, those with global brands operating across multiple geographies,” said GSFM CEO Damien McIntyre. “Investors should look to companies with solid balance sheets and resilient earnings and cash flows – such as tech, healthcare, and utilities. A greater universe of companies fitting this profile is found outside of Australia.
“Globally, it is these three sectors where we have seen resilience in earnings profile and in dividend profile in previous recessions.”
Investors should be careful about interpreting “high-level commentary” about the impact COVID-19 will have on dividends, as it can differ based on geography and by sector.
“Two sectors that are typically hit hard during recessions are financials – as we have already seen in Australia, they are always at the centre of the storm – as well as consumer discretionary stocks,” Mr McIntyre said. “Conversely, two sectors that have typically held up well in recessions are tech and healthcare.
“Dividends are much more stable in the tech sector. And healthcare tends to be virtually recession-proof with very modest declines in earnings per share and dividends per share.”
And not all businesses will face the same impact from restrictions, with many continuing to generate strong cash flows while others had enough liquidity to withstand a demand hit.
“One other factor to consider is that, despite the deterioration of the short-term market environment, the ability of many companies to pay dividends has actually improved over recent years,” Mr McIntyre said.