The major driver of returns for Australian equities is likely to come from dividend streams in the immediate future, according to the head of equities at Tyndall Investments.
“Now that’s not unusual. During the ’90s we had earnings growth that saw dividend yields taking a secondary place, but for long periods of time the major part of equity returns have been dividend yields,” Tyndall Investments head of equities Bob Van Munster said.
And in this environment the biggest winners would be superannuants and retirees as they were likely to be paying 15 per cent tax or no tax at all, making fully-franked dividends all the more attractive, Van Munster said.
“They also become safer because of the lack of leverage most corporations have on their balance sheets,” he said.
The increased influence of short-term factors on the valuation process of Australian equities is the phenomenon identified as the cause of this change.
“If you look at why valuation of the market expanded in the ’90s and 2000s, it really was because investors could take a longer time horizon. The back was broken on inflation, the Cold War had ended, we had globalisation, and people felt comfortable about taking longer-term projections,” Van Munster said.
“But we’re now in a scenario where we’re moving from crisis to crisis and it’s hard to get a handle on things like where the developed economies are going, whether we’re going to see protectionism rather than globalism as a result of these types of issues, and therefore shorter horizons and probably shorter cycles in valuations of markets are going to be more prevalent than what we would traditionally see.”
