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Australian Shares, Investments

Dividend growth most important

dividend growth

Investors have been reminded to assess the future dividend growth capacity of companies when looking to boost the income from their portfolios.

A fund manager specialising in Australian equities has reminded individuals looking to take advantage of the recent growth in dividend payouts, evidenced during the latest reporting season, to avoid being attracted to companies currently delivering a high yield.

Instead DNR Capital said investors wanting to boost the income generated from their portfolios should consider allocations to companies that are likely to pay a growing dividend over time.

“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,” DNR Capital Australian Equities Income Fund portfolio manager Scott Kelly noted.

“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,” he added.

According to DNR Capital, Qube Holdings is a company forecast to generate strong dividend growth in the short to medium term.

“We consider Qube one of the most visionary and well-managed businesses in the ASX 200. It is in the process of selling warehouses and property at Moorebank in Sydney, and assuming successful completion of the sale, the company’s strong balance sheet should allow accretive corporate activity,” Scott said.

“The company’s forecast dividend of 6 cents per share for the 2020/21 financial year represents a yield of around 2 per cent, fully franked. However, we expect double-digit growth over the next three to five years. In addition, we estimate Qube will have excess franking balances that would allow it to pay a special dividend of up to 15 cents per share.”

On the other hand, the manager warned against investing in the big four banks on the back of their most recent dividends.

“Higher bank dividend payout ratios and capital management appear attractive for income-seeking investors. However, long-term headwinds remain for the sector, including disruption from fintech companies,” Scott explained.

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