Listed companies with sufficient cash flow should be making dividend payments through the COVID-19 economic downturn to ensure investors dependent on that income are not left short, according to an investment manager.
Australian shares manager Martin Currie made the call in a letter sent to the chair of every major company held within three of its income-generating funds and signed by the firm’s chief investment officer, Reece Birtles, and portfolio manager, Will Baylis.
The letter noted the shutdown of the Australian economy due to COVID-19 had exacerbated the downward trend of interest rates and retirees reliant on income from low-risk term deposits were now in a “dire situation” as those investments could not meet their cost of living.
The investment manager pointed out its income funds had been designed to provide “high-dollar income” to retirees and during the COVID-19 period had invested in companies that had strong balance sheets and earnings and could afford to make dividend payments.
It was, however, concerned some of the Australian Securities Exchange-listed companies in which it had invested “are equivocating about whether to pay dividends, even when they do have sufficient cash flow and means to pay those dividends”.
“For the investee companies in our Income portfolios, our message is clear – if a company has reasonable cash flow and a sound financial position, dividends should be paid,” the letter stated.
“In such difficult economic times, and with an uncertain market outlook, the benefits of both dollar income and franking credits to retirees cannot be underestimated. Retirees are key beneficiaries of these dividends and they have worked hard to have sufficient capital to fund their own retirement.”
The letter pointed out charities and foundations were also dependent on dividend income to fund their activities, which often provided a social benefit in the form of hospitals, scholarships and other charitable services.
“The lack of alternatives to equities for these investors who need a high-dollar income stream and the consequences for the whole economy and future generations should all retirees be forced to be on the age pension in the future are stark,” it said.
“The need for companies to pay out their dividends has never been greater.”