Dividends set to boost incomes

Retirees who live off fixed-income assets have had it tough in this era of rock-bottom yields. But there may be some relief on the way in the form of dividends.

Plato Investment Management expects the S&P/ASX200 index to return a 4.8% gross yield in 2021, upgraded from the 4.1% its modelling was forecasting in December last year.

“It’s been near impossible for retirees to generate any sort of meaningful income from cash in the bank or bonds for a number of years now, and when dividends were slashed throughout 2020 I think many would have been facing the prospected of drawing down capital to keep the lights on,” says managing director Don Hamson. “Thankfully, we’ve now seen a very swift recovery in dividends.”

The upgraded forecast comes on the back of a February reporting season that saw several companies declaring record dividends. Banks are miners are leading the charge.

“Out of the big four [banks], we think Commonwealth Bank looks to be best positioned when it comes to income for shareholders,” says Hamson.

“Its $1.50 dividend equates to only 67% of earnings and the bank has said its payout ratio is likely to be 70%-80% this year, so a stronger second-half dividend is expected.”

The miners are also well situated to reward investors in 2021. “When it comes the miners, we think this is a space income investors can’t afford to ignore right now. Of the top six dividend payers in Australia, three are now mining stocks.”