Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
3 unlikely stocks to get your dividend fix
One of the main themes that played out this reporting season was the absence of company dividends. The cash doled out by the largest 50 ASX listed companies was by in large withdrawn to conserve capital during the pandemic. A study released this week by Janus Henderson looked at the dividends paid out recently by 1,200 of the world’s largest companies. The report found that there was a huge quarterly fall in the amount companies were paying out. According to the report, global dividends fell USD$108.1bn to USD$382.2bn in the second quarter, the lowest 2Q total since 2012. The expert went on to say that “the 22.0% headline fall equated to a decline of 19.3% on an underlying basis and was easily the worst quarterly drop since the index started at the end of 2009 post the global financial crisis (GFC). More than a quarter (27%) of Q2 payers cut their dividends, and more than half of this group cancelled them outright.”
In a strange twist, this year the top dividend paying stocks weren’t the Banks, or Telstra or a property trusts. They came from healthcare, tech, and mining. All proving resistant to cuts. The largest six dividend paying companies were:
| Company | Dividend Total AUD$ | Dividend | Share price | % Yield |
| Rio Tinto (AUD $2.31bn) | $2.31bn | $2.16 | $100.90 | 2.15% |
| Fortescue (AUD $2.04bn) | $2.04bn | $1.00 | $18.56 | 5.39% |
| Woolworths (AUD $0.52bn) | $0.52bn | $0.46 | $39.79 | 1.16% |
| CSL Ltd (AUD$0.42bn) | $0.42bn | $1.07 | $295.12 | 0.36% |
| QBE (AUD $0.25bn) | $0.2bn | $0.04 | $10.60 | 0.38% |
| Brambles (AUD $0.15bn) | $0.15bn | US$0.09 | US$11.09 | 0.81% |
With APRA’s new guidelines in play, banks have been forced to give up withdraw any plans for dividends payments and to instead conserve cash and protect against any further adverse shock. In a quarter that has disrupted the fabric of life, the impact on dividends was equally dramatic. Janus Henderson expects headline global dividends to fall 17% and payouts to drop 23% in a worst case scenario. The worst affected regions were Europe and the UK, where payouts fell by two fifths on an underlying basis.
What makes it such a sensitive topic is that the country’s largest and most stable companies, i.e. Banks and Telstra, have become to be known the ‘safe’ and ‘reliable’ income generators. They are the backbone to the economy and it’s because of their solid balance sheets, that they have been able to consistently declare dividends year after year. That was up until now. The dividend party days are over and that trend long gone. This year will be the worst year for dividends since the global financial crisis as the coronavirus pandemic ravages balance sheets of some of the countries most established and relied upon names evaporating dividends in its path.
In this piece we’ve selected 3 stocks that can be considered as dividend stocks in the absence of the usual big dividend payers.
JB Hi-Fi (ASX:JBH): The online electronics retailer has had a bumper year following what was a great result supported by solid growth in sales on the back of the COVID-19 lockdown. The company posted an underlying profit of $332.7 million, a 33% increase on 2019 as investors purchased anything from computer monitors to laptops and Bluetooth speakers to help set up their home offices. What was interesting was its final dividend of 90 cents per share, up 76.5%. This brought the final dividend to $1.89, up 33.1%. The FY20 payout only represented 65% of underlying net profit.
Fortescue Metals Group (ASX:FMG): Another company that was relatively unscathed during the entire COVID-19 period, held up by a strong iron ore demand. It provided a payday of more than a billion dollars for the company’s founder Andrew Forrest. The miner declared a final dividend of $1.00 which means Forrest will reap nearly $1.2 billion. Full-year shipments, at more than 178 million tonnes, were up 6% than the previous corresponding period. At the current share price that brings the dividend yield to just under 6% with around $2.04bn to be paid out in total dividends.
Ansell (ASX:ANN) – Another beneficiary of the coronavirus pandemic, the rubber glove and safety body suit maker posted a record sales figure of US$1.61bn together with an increase of 9% in its dividend for the 17th year in a row, of US28.25 cents per share for a full year dividend of US50 cents. The dividend rise comes on the back of surging demand for its medical gloves. Earnings per share was up 9.2% to US121.8 cents. The company was so confident that it even reaffirmed earlier. Something that was a rare occurrence this season.
