Focus on long-term dividend growth

23 March 2021
| By Laura Dew |
image
image
expand image

Investors need to remember to consider the long-term sustainability of a company’s dividend, not just the current yield, according to DNR Capital.

 

There were several sectors which had paid strong dividends in the recent reporting season including financials but investors should be aware of their likelihood to continue at these levels.

 

Scott Kelly, manager of the DNR Capital Australian Equities Income fund, said: “Some companies currently paying high dividend yields may actually have low, or even negative earnings growth going forward. This will limit future dividends and will likely impact their share price too. It is important to be aware of these dividend traps.

 

“Pursuing a high-yield strategy, while ignoring other factors, is simplistic and fraught with danger. High yields can indicate companies are facing structural headwinds and dividends might be at risk of being cut.”

 

Instead, investors should consider a company’s dividend sustainability and seek out those quality companies which had to ability to grow their dividends over time.

 

The DNR fund had a dividend yield expectation of 4.5% which was almost 6% if dividends were grossed up for franking credits.

 

While around half of all ASX 200 dividend upgrades came from the financial sector in February, Kelly said the firm was still wary on this sector and had a 6% underweight to the big four banks as it foresaw long-term headwinds including disruption from fintech companies.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 3 days ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 1 day ago

Having divested its advice business in August, AMP is undergoing restructuring in at least four other departments amid a cost simplification program....

2 weeks 5 days ago