COVID’s dividend dive deepens: here’s what investors can do
Many ASX-listed companies are delivering sharply lower dividends – or none at all – and there are a few valuable lessons investors should remember.
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A dividend drought is getting worse for investors and retirees amid a growing list of major companies paying nothing to their shareholders right now.
It’s tough for Aussies trying to save, invest or fund their own retirement without relying on a cent of government welfare.
First they were hit by shrivelling bank deposit interest rates – down from 7 per cent to 1 per cent in the past decade.
And now they’re battered by shrinking or disappearing dividends as COVID-19 causes havoc with company profits.
Big banks – popular among mum and dad investors for decades – have delivered some harsh blows. Westpac and ANZ deferred their latest dividends, leaving shareholders with nothing, while NAB cut its dividend by two-thirds.
Last week Australia’s biggest bank, The Commonwealth Bank, announced an 11.3 per cent drop in annual cash profit and slashed its final dividend to 98c, down from $2.31 last year. The drop is in line with banking regulator APRA’s demand for banks to halve their dividend payouts.
At least CBA shareholders get something, to be paid on September 15, and there is hope that ANZ and Westpac may reinstate some of their deferred dividends when they report annual profits in October and November.
Companies including Sydney Airport, SEEK and Challenger last week announced results with zero dividend payments, while Woodside, QBE, AGL, and Transurban cut dividends sharply.
Some stocks did lift dividends, with retailers Adairs and Nick Scali copping criticism for doing this while benefiting from Federal Government JobKeeper assistance.
Investors and retirees would be wise to remember a few long-tested tips and strategies around dividends.
DIVERSIFY AND KEEP THE FAITH
We are in crazy times, trapped in a once-in-a-century event that’s smashing economies and businesses everywhere. Good companies will grow strongly when the COVID crisis passes.
Holding a diversified range of dividend-paying stocks will smooth out the ups and downs.
Consider treating 2020 as a write-off when it comes to income, and hope that 2021 will be better.
DON’T BE SEDUCED BY GROWTH
It’s been a good year for some growth investments, such as technology stocks that pay little or no dividends and the booming prices of gold and Bitcoin, which are seen by some as safe havens but never pay any income. Trying to time the market, particularly with speculative investments, is asking for pain.
Surging US shares appear to have lost touch with reality. One market strategist last week described them as “remarkably ridiculous” given the struggling US economy.
AVOID ULTRA-HIGH YIELDS
Companies paying spectacular dividend yields are often in trouble. Their yield simply reflects their previous payout, but the market knows the next one will be much lower.
It’s pointless getting paid a 10 per cent dividend yield when the value of your investment drops by 20 or 30 per cent. Stick to quality stocks and seek professional advice if uncertain.
A good investor takes a long-term view and has a strategy stretching out for decade or more.
This current bump in the road for dividends is a nasty one, but remember that investing is a really long road.
Originally published as COVID’s dividend dive deepens: here’s what investors can do