Dividend decline greatly exaggerated
Experts say the impact COVID-19 will have on dividends may be "greatly exaggerated", as commentators may not be taking geography and sector into account.
“Two sectors that are typically hit hard during recessions are financials – as we have already seen in Australia, they are always at the centre of the storm – as well as consumer discretionary stocks,” GSFM CEO Damien McIntyre told Investor Daily.
“Conversely, two sectors that have typically held up well in recessions are tech and healthcare.
“Dividends are much more stable in the tech sector. And healthcare tends to be virtually recession-proof with very modest declines in earnings per share and dividends per share.”
Not all businesses will be affected and many will continue to generate strong cash flows and others will have enough liquidity to withstand a demand hit.
“One other factor to consider is that, despite the deterioration of the short-term market environment, the ability of many companies to pay dividends has actually improved over recent years,” said Mr McIntyre.
Still, a number of companies are slashing their dividends. So, says Mr McIntyre, Aussie investors seeking income should be looking overseas.
“In this new investing environment, investors would do well to focus some of their attention on companies outside of Australia, those with global brands operating across multiple geographies,” he said.
“Investors should look to companies with solid balance sheets and resilient earnings and cash flows – such as tech, healthcare, and utilities. A greater universe of companies fitting this profile is found outside of Australia.
“Globally, it is these three sectors where we have seen resilience in earnings profile and in dividend profile in previous recessions.”