The managing director of a boutique investment house has said the firm will be entering the new year with a bullish outlook for yield from Australian equities.
Plato managing director Don Hamson has said the firm is expecting to see continued “exceptional” yield from iron ore miners into 2021, even if there is some short-term volatility.
“COVID-29 economic stimulus across the globe is continuing to evolve from income support to infrastructure spending, led by China, and this is a strong tailwind for demand,” Dr Hamson said.
“There is some concern about the impact of the trade wars, but the reality is Chinese steel mills have few options outside of Australia. Brazil being the other major iron ore exporter, but all the data indicates Brazil alone can’t provide China with what they need.
“China is hitting the exports it can get from other countries, like beef, barley, wine and now it seems coal.”
Plato has retained the same picks for dividends in the mining sector in 2021 – Fortescue, BHP and Rio Tinto. But the firm also believes income investors will be able to find strong yields in select domestically focused retailers in 2021.
“You can’t travel abroad, so if you think about the number of additional Australians who’ll be spending the holiday season at home, buying groceries from supermarkets, buying gifts and taking advantage of post-Christmas sales, we think this is significant,” Dr Hamson said.
“It bodes well for continuing strength from consumer staples, stocks and select consumer discretionary. We expect good yield from the likes of Wesfarmers, Coles, Super Retail and JB Hi-Fi in the year ahead.”
He is also expecting upside in bank payouts, buoyed by APRA’s removal of dividend payout limits.
“We’ve been underweight banks for most of the year but have become much more optimistic on banks’ dividends in recent months,” Dr Hamson said.
“We don’t expect bank dividends to go back to where they were two years ago, but we’re confident they will increase in 2021 and begin moving back towards normal payout ratios of between 70-90 per cent. Rising property prices and continued government support for small business are both key factors that strengthen the case for a recovery in the banks.”
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...