Use re-investment plans to pay dividends: Plato
Plato Investment Management has urged the big four banks to use their dividend re-investment plan (DRP) to continue paying their dividends.
This would protect those investors, particularly retirees, who relied on dividend income.
It is estimated the big four banks paid 30% of all gross dividends of the ASX 200 index in 2019.
Banks have already been named as a sector where dividends were at risk, particularly the smaller players. This would be caused by the knock-on effect of the rent and mortgage deferments which would mean less cash and the need for banks to keep capital to service their own debt loads.
Since the start of the year to 9 April, the best-performing big four player was Commonwealth Bank which had seen its share price lose 20%. The remaining three had seen similar size losses of 32% for ANZ and 34% for Westpac and NAB.
Plato IM managing director, Don Hamson, said: “We know many of Australia’s traditional income stocks have dividend re-investment plans. These companies can choose to underwrite those plans, which effectively means new shares will be issued matching the dollar value of all the dividends they pay.
“For those investors electing cash rather than the DRP, the company will still issue new shares which a broker will sell on market during the DRP pricing period. This allows the company to completely preserve its capital as well as paying dividends to those who rely on the income to make ends meet.”
Overall, dividends could be cut by as much as third this year as the country tries to weather the volatile global stockmarkets.
Share price performance of big four banks since the start of 2020 to 09 April.
AUTHOR
Laura Dew
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