Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
10 per cent yield the new target of income fundies
After a dismal year in terms of dividend yields, payouts have been at multi-year lows after most corporations were forced to cut payments to shareholders because of the pandemic. But Plato Investment Management is confident that dividends are back, and has revised up its dividend yield target for the 2022 financial year to 10% gross income from Australian equities. It’s the highest dividend yield target set by the firm for a financial year since 2019.
While the Australian share market has largely recovered from the pandemic, dividends remain below pre-pandemic levels. Going by Plato’s analysis, 2020 was the toughest for dividend investors, who suffered a 35% fall in dividends paid. The fall was led by the big four banks, which collectively cut their dividends by 60% over 2020. Dividend payouts during 2021 haven’t been all that much better but Plato says “a return to pre-COVID levels of dividends looks likely over the next year and many of the leading banks have robust balance sheets.”
But Plato’s co-founder and senior portfolio manager, Dr Peter Gardner, is a lot more confident this year, saying the surging yield target is a result of a combination of tax-effective off-market buybacks, a cash splash from miners, and the robust Australian economy.
“Because we manage our portfolio specifically for low-tax investors such as retirees, we have been able to take advantage of off-market buybacks undertaken by key portfolio holdings including CBA, Woolworths and Metcash. And while the retraction in the iron ore price has worried investors, we’ve seen companies such as BHP, RIO and Fortescue generate exceptional cash and franking credits for investors in recent months and many of these strong companies remain highly profitable,” he says.
The good news is that the Australian economy came out of the pandemic relatively unscathed, companies are cashed-up and ready to spend. Dr Gardner says, “Across the world, there appears to be little political appetite for widespread lockdowns in the foreseeable future and while variants bring uncertainty, we feel the strong economic bounce-back we’ve seen over the past year is sustainable.”
And it’s not just the finance sector that is looking great: “the retail sector is another area that could generate strong income in the second half of the financial year.” Plato expects “strong retail trading over Christmas to benefit select retailers such as JB Hi-Fi and Super Retail Group.”
For all the dividend investors, the message is clear, 2022 is shaping up to “a bonanza year for dividends.” Plato says, “to take full advantage of the potential yield on offer, they need to ensure their portfolios are actively managed and optimised to maximise after-tax returns. Since inception (September 2011), the Plato Australian Shares Income Fund has outperformed the S&P/ASX200 by 0.6% (a year) and delivered a 9.4% income per annum, including franking credits.”
