Investing for Income in the Sharemarket

By Anton Tagliaferro | More Articles by Anton Tagliaferro

The Reserve Bank’s policy of lowering the Australian cash rate to record lows has led to yields on term deposits falling to similarly low levels, and all indications are that this situation could be in place for some time to come. This means that for many investors – particularly retirees – earning sufficient income from their cash through investing in term deposits and bond investments will not yield sufficient income to fund their lifestyle going forward. In this environment, many investors are turning to the sharemarket for income.

The evolving economic environment as we emerge from the COVID-19 pandemic, and the prospect of higher inflation, also mean that it’s more important than ever for investors to ensure that the income they aim to generate from the sharemarket is based on a sound foundation.

The key issue is how to invest in companies that will pay reliable dividends with attractive levels of franking credits. Many investors have traditionally sought to achieve this by owning some of the largest listed companies. However, this exposes investors to the potential risks associated with depending for income on a relatively small number of companies. As the most recent profit reporting season showed, payouts from individual companies can at times be highly variable. Additionally, some traditional sources of income from the sharemarket – such as banks and listed property trusts –  have recently shown themselves to no longer be as reliable as they have been in the past.

The companies most able to pay regular and sustainable dividends as well as generate capital growth over the longer term are those which have a competitive advantage such as a strong franchise, a track record of recurring revenues and earnings supported by a strong balance sheet, and which are run by competent and experienced management.

Many of these opportunities are outside the 20 largest listed companies, and provide exposure to quality companies in less researched sectors such as the utilities, packaging and gaming sectors.

At a forthcoming event for shareholders in listed investment company QV Equities (QVE) and other interested investors, myself, Simon Conn, and other members of Investors Mutual’s investment team will discuss:

  • the current dynamics of the sharemarket
  • how they are using IML’s quality and value investment philosophy to find good quality companies which represent sound long-term value and which can do well over the next three to five years
  • how owning a selection of companies outside the top 20 which is underpinned by reasonable valuations and good assets provides a solid foundation for sustainable income
  • the current make-up of the QVE investment portfolio, and why it is well-positioned to provide reasonable income and capital growth in the coming years.

 

IML’s investment managers will also answer attendees’ questions about sharemarket investing and investing for income.

The event is being held on 25 March 2021 as a COVID-safe in-person event at the Four Seasons Hotel Sydney, and also livestreamed online.

Places are still available and you can register for the live event here and the livestreamed event here.

 

Investors Mutual Limited AFSL 229988 has prepared this article, as the Investment manager for, and on behalf of, QV Equities Limited ACN 169 154 858 (QVE). This article is for the purposes of providing general information only and does not constitute an offer, solicitation or recommendation with respect to the purchase or sale of any securities in QVE nor does it constitute financial product or investment advice nor take into account your investment objectives, taxation situation, financial situation or needs.

 

Anton Tagliaferro

About Anton Tagliaferro

Anton Tagliaferro is one of Australia's most respected value managers. Anton founded Investors Mutual Limited (IML) over 22 years ago with the purpose of creating a research-driven fund manager focussed on building portfolios of companies that represent both 'quality and value'. Anton remains Investment Director of IML and is Portfolio Manager of QV Equities (ASX:QVE) which invests in the ex 20 segment of the ASX. He recently published the book ’20 Lessons from 20 years of Quality and Value Investing’

View more articles by Anton Tagliaferro →