Returns offer a fair share
While savings are not earning much in interest, share dividents may be a better bet, writes
SHARES and senior Australians have sometimes had a shaky relationship, and the current 15 per cent slump in the stock market is giving many the jitters.
Whether you’re already retired or planning a dividendcharged retirement portfolio, investment experts say the latest downturn should not be a major cause for concern.
Based on current share prices, many of Australia’s most successful companies are paying dividend yields of more than 6 per cent – which translates to more than 8 per cent when you include tax credits from franking.
Middletons Securities adviser David Middleton says growth is illusory “but income is in your pocket. Share prices have fallen away and could go down some more, but there’s nothing really terrifying out there in the real economies. The income hasn’t dropped.”
People who held their nerve during the Global Financial Crisis experienced a 55 per cent plunge in share prices, but dividends fell only slightly. spokesman Campbell Fuller says insurance enables people to protect their assets for a relatively small fee, and without it most people don’t have the franking credit refund. “I’m saying to my clients that you are not living on capital,” Middleton says. “All you care about capital is that over time it heads in the right direction. We are still getting more income from our share portfolios than we possibly could with in cash in the bank.”
Wealth For Life financial planning principal Rex Whitford says investing in a diverse range of companies is the way to go.
“If you have one or two investments you can lose everything, but if you are well diversified the only way to lose it all is through an earthcrossing asteroid incident,” he says. “It’s not rocket science that shares are paying a better return than cash.”
Some of the most popular stocks among retirees include:
BHP Billiton, the world’s biggest mining company, has a policy of not dropping its dividend, which is paid in US dollars so has benefited from the falling Aussie dollar.
Coca-Cola Amatil, a defensive company. “People will always drink Coke,” Whitford says.
CSL is a healthcare giant that does not have the high dividend yield of other blue chips, but has delivered huge growth.
Cochlear, which makes bionic ear implants, is a worldclass health care company with strong growth, Whitford says.
Big four banks – Commonwealth Bank, Westpac, ANZ or NAB, all but NAB have delivered good share price and dividend growth since the GFC.
“I like the banks – they are going to make money no matter what,” Whitford says. But a diversified share portfolio is not owning just three or four banks, Middleton says. “Banks are not perfect – you are not going to necessarily have a smooth run.”