Look to sustainable dividends to manage risk

dividends/financial-advisers/merlon-capital-partners/morningstar/Neil-Margolis/

9 October 2020
| By Jassmyn |
image
image
expand image

Financial advisers and investors should look at sustainable dividends rather than the very next dividend when managing risks while generating equity income, according to Merlon Capital Partners. 

Speaking at the Morningstar Investment Conference, Merlon’s lead portfolio manager, Neil Margolis, said sustainable dividends meant capital was preserved after the dividend was received. 

“To understand sustainable dividends you have to understand sustainable cashflow. To do that you have to have as much history as possible on the company – have they generated cashflow in the past, what’s the macro conditions, what is normal for that company, and has the industry and company’s position changed over the last five or 10 years,” Margolis said. 

“Once you understand sustainable cashflows and you deduct debt in full because that’s really important to determine what is available in dividends and that’s a good starting point.” 

He noted that when selecting companies, investors should avoid starting with the index as it could have concentration risk. 

“We like to think of all companies as equal opportunities to look for the best dividends and that’s a non-benchmark approach,” he said. 

“The third thing to manage risk is to use stock specific hedging within the fund to retain 100% of the franked dividends but only have say 30% less downside risk.  

“That is something is more difficult for individual investors and advisers to do but something we add on top.” 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months 3 weeks ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 4 weeks ago

ASIC has suspended the Australian Financial Services Licence of a Melbourne-based financial advice firm....

1 week 5 days ago

The corporate regulator has issued infringement notices to three AFSLs whose financial advisers provided personal advice to a retail client while unregistered....

2 weeks 3 days ago

ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test....

3 weeks 1 day ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND