Investors are currently presented with a unique dividend opportunity

By Scott Kelly | More Articles by Scott Kelly

DNR Capital has cautioned investors not to disregard attractive dividends from Australian equities despite the COVID-19 induced battering.

Scott Kelly, Portfolio Manager of the DNR Capital Australian Equities Income Fund says,

“Since the beginning of the COVID-19 pandemic, 2020 calendar year dividend expectations for the ASX200 have fallen from ~$73bn to ~$58bn, which is broadly the same level of dividends that were paid in 2013.

However, we believe dividends will recover quickly, with 2022 underlying dividends expected to be broadly in-line with 2019 – this ignores special dividends that were paid ahead of Labor’s proposed franking policy changes.”

Kelly adds “There have been dividend winners and losers with Financials hit hard with recession headwinds and regulatory intervention, whilst Resources companies have been faring well as high commodity prices help generate significant free cash. This is a good reminder for investors that sources of yield shift over time. Active portfolio management and stock selection can therefore have a significant impact on income generation.”

All things considered, we expect income from equities will continue to be an important source of return for investors for several reasons.

“First, the yield on equities is still very attractive relative to alternatives: The dividend yield for 2021 and 2022 is forecast to be 4-5% plus franking, compared to cash rates and fixed interest products below 1%.

“Second, dividends will continue to be a large contributor to market returns, having contributed approximately half the ASX200 index returns for decades.

“Third, franking benefits are unique to the Australian market and provide a source of upside for domestic investors – particularly for retirees. Each year the portfolio typically receives dividends with ~78% franking attached.

“Fourth, dividends have rebased with upside potential as revenues and dividend payout ratio’s normalise over the coming years”, says Kelly.

“At DNR Capital we continue to position the Fund in high-quality businesses that offer a combination of attractive dividend income, growth, franking benefits and importantly, valuation support.

“We believe that a growing dollar income over time is will deliver a positive outcome for income-seeking investors as they seek to offset inflation and look to maintain lifestyles into retirement.

“Despite the challenging times we believe ASX dividends still remain very attractive, just be active and targeted,” Kelly adds.



About Scott Kelly

Scott Kelly joined DNR Capital in August 2015 and is Portfolio Manager for the Australian Equities Income Portfolio. He is also responsible for the investment research of the telecommunications, transport, utilities, infrastructure, and media sectors.

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