Time to rethink share dividends

Anthony Keane warns there might be a change in the wind

SHARE dividends have boosted Australians’ income and wealth for decades, but fresh financial forces mean that some old ideas need to be trashed.

The set-and-forget strategy of relying on banks and Telstra shares for good dividends and growth has collapsed, but newer, nimbler options are emerging.

Investment specialists say we should diversify portfolios and focus on future dividends, rather than an income for today.

Telstra is an example. It is paying a dividend yield of 4.9 per cent – twice as high as bank interest – but its share price has halved in the past three years and its final dividend dropped from 15.5c to 11c.

Plato Investment Management managing director Don Hamson said Telstra’s slide showed investing was not all about income.

“If you have lost that much capital, your returns look pretty ordinary,” he said. “Telstra’s paying a part ordinary dividend and part special dividend. To us, that’s a signal the special dividend may not be around in a year or two.”

Compare this with Aussie biotech giant CSL, which has a dividend yield of just 0.85 per cent. But its final dividend of $1.28 was up from 90c three years ago, and 23c a decade ago. Its share price has also climbed 150 per cent in three years.

Big banks have long been solid dividend payers but their share prices have struggled amid the royal commission and tough competition. “I’m still positive about the banks but there’s a level of uncertainty,” Dr Hamson said.

“At the moment we’re seeing some good dividends coming out of the resources area but I’m not going to say that’s going to be great for the next 20 years. It’s very cyclical.”

Investment options are increasing for those wanting to leave MONDAY, SEPTEMBER 3, 2018 dividend choice to the experts. These include exchange traded funds and listed investment companies. “The way we get high yield is active rotation,” Dr Hamson said. “In Europe, a lot of companies pay single large annual dividends. You go in for two months, get the dividend, then sell.” Catapult Wealth director Tony Catt said falling fees meant dividend-focused investment funds were increasing in popularity.

He said much of the blame for traditional strategies rested with financial planners and stockbrokers. “We get far too conscious of recommending things based on today’s dividend and perhaps not considering the growth,” Mr Catt said.

“It’s not about what the dividend is today – it’s about the growth in the dividends.

“It’s an education thing and a little bit of a leap of faith because people often want the money now.”