Retirees join the beekeepers as the dividend honeypot swells

Dr Don Hamson

Plato Investment Management

From morning to night, a procession of politicians lining up to front the media has ensured none of us could miss the fact a federal budget was delivered last week.

Last week, Michelle Grattan shared this quip by a Liberal backbencher, overheard in parliament house: "Did anyone miss out? Perhaps only the beekeepers of Australia."

Well, we’d argue self-funded retirees are standing shoulder-to-shoulder with the beekeepers.

Every year, I’m asked by clients what a budget means for retirees and other income investors. The truth is what you hear during a budget week is a lot of spin – the foundations of a massive marketing exercise of which effectiveness can only be judged at the next election.

As an investor, it's best to ignore the politics, spin and pageantry and focus on the nuggets of information that can help you draw conclusions about the bigger picture for the business environment. After all, as shareholders, we are part-owners of listed companies and our income is dependent on those companies being able to make profits which are in turn distributed to shareholders via dividends.

From the Plato team’s perspective, the most relevant takeaways for assessing the outlook for the business environment (and dividends), are as follows:

  • The budget deficit is lower than expected (2020/21 $161 billion, 2021/22 $107 billion).
  • Net debt of $617 billion in 2020/21, peaking at $980 billion in 2024/25 which equals 40.9% of GDP.​
  • Our economy is expected to grow strongly at 4.25% in 2021/22
  • Wage growth subdued at 1.5% p.a.​
  • Inflation subdued at 1.75% p.a.​
  • Interest rates to remain low until 2024
  • International travel likely to resume from mid-2022​
  • Significant government spending increases

Broadly speaking, much of this data indicates the Australian businesses environment and broader economy is in far better shape than most were anticipating six months ago. While we won’t see stimulus cheques like in the US, households and consumer spending should continue to be boosted by the extension of the low-and-middle-income tax offset and jobs will no doubt come from the $15 billion infrastructure spend.

The reduction in the eligibility age for the downsizer contributions and the abolishment of the work test (which will mean people aged 67 - 74 will be able to make non-concessional and concessional contributions into their super without having to meet a work test) will no doubt assist some. However, there is rarely any meaningful policy directed at supporting this group of quiet Australians.

Self-funded retirees rely on income from investments to keep the lights on and have been doing it tough in the historically low-rate environment.

Thankfully, in the shadows of the Budget, we have had some very positive news for dividend income.

The banks have bounced back

Over the past fortnight, half-year results from Westpac (ASX: WBC), ANZ Bank (ASX: ANZ) and National Australian Bank (ASX: NAB), along with a third quarter result from Commonwealth Bank (ASX: CBA) have been released.

Across the board, we’ve seen a significant write-back of provisions and strong increases in cash earnings within the banks - a result of the improving economic outlook.

To summarise the dividend announcements:

  • Westpac posted a 58 cent interim dividend, compared to the 31 cents paid for the entirety of 2020. This equates to a 6.6% annualised gross yield.
  • ANZ posted a 70 cent interim dividend, compared to the 60 cents paid for the entirety of 2020. This equates to a 7% annualised gross yield.
  • NAB posted a 60 cent interim dividend, compared to the 60 cents paid for the entirety of 2020. This equates to a 6.2% annualised gross yield.

CBA didn’t post a dividend because its result released last week was a quarterly announcement. However, its cash net profit after tax (NPAT) of $2.4 billion for the quarter is a 24% increase when compared to the average cash NPAT for the last two quarters. Another very strong result.

Bank dividends aren’t yet back to pre-covid levels, but they are well on the way and much like the budget, the information within these results gives us confidence about the broader outlook for dividend income.

We also expect the big miners to keep generating strong dividends over the foreseeable future, with commodities continuing to display strength. Elsewhere in the past few weeks results from CSR (ASX: CSR), Amcor (ASX: AMC) and Super Retail (ASX: SUL) have also been very encouraging. 

Plato projects the ASX200 is on track to return around 5% gross yield in the coming 12 months and it's likely active and tax effective portfolio management will be able to deliver significantly more.

On the sideline, with the beekeepers and their hives, at least self-funded retirees can look forward to a dividend honeypot that appears to be getting sweeter. 

Plato Investment Management specialises in maximising retirement income. 

Visit the Plato website to find out more. 

........
This article is for general information only. Nothing contained in it constitutes or shall be deemed to constitute a financial, legal, tax or other advice of any kind, a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. You should form your own assessment and take independent professional advice on the suitability and merits of any action on the basis of this article relevant to your particular circumstances and investment objectives and the legal, regulatory, tax and investment consequences and risks of doing so. Neither we, nor our affiliates or any person named in the article accept any responsibility to any person for the consequences of any person placing reliance on the information within this article for any purpose. Past performance is not indicative of future performance. We do not guarantee or provide any assurance that our investment capabilities will achieve any target, objective or return on capital. The fact that a particular investment strategy, or shares in a particular company may be mentioned is not a recommendation to buy, sell or hold that financial product.

Dr Don Hamson
Managing Director
Plato Investment Management

Don has over 25 years investment management experience. He founded Plato Investment Management Limited in 2006. Prior to Plato, Don was Head of Active Equities, Asia Pacific and a member of the global Senior Management Group at State Street...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.