- Dividend stocks are still a popular investment choice in Australian equity space especially in finance, basic material and consumer durables sectors.
- Banking stocks, once considered as dividend stars, warrant some caution.
- Sticking to long term perspective and tapping attractive stocks with strong fundamentals in relatively immune sectors seem to be good combination in securing passive income.
Dividend stocks, as a source of relatively stable passive income, continues to remain a popular investment choice in the face of COVID-19 crisis. For the investors who want to take a safe step, prudent decision in picking dividend stocks comes to the fore. They should look at attractive themes often regarded as stable providers of dividends, keeping in mind the interplay between business cycle and economic cycle amidst broader market trends.
The focus is mainly on two aspects – dividend growth and sustainability, and high dividend yield. Instead of being overly concerned about the volatility of the stock market, investors tend to buy dividend shares in a company with decent track record of paying sustainable dividends, reflecting growth in distributing its profits in the form of cash dividends.
Although, historical performance needs to be carefully evaluated amidst current thematic trends. For instance, banking players once regarded as safe haven for dividend payouts, were seen to be under pressure during virus crisis, given the challenges faced in terms of capital position, default risks and dividend deferment/cancellations.
Besides financial ratios such as dividend yield should be relied upon with caution, to be backed by comprehensive fundamental analysis of the stock in question. Also to consider that when a company boasts a yield of 6% or above, but has a poor year of earnings due to business failures, market turmoil or economic uncertainty, it may not be able to distribute dividends quite as much.
Is it safe to bank upon Dividend Stocks in times of crisis?
At the time of recession, market tends to witness panic selling, as apparent during March 2020 pandemic-induced crash, on the belief that dividends may not protect the principal investment while the stock may lose its value. Many investors resort to selling their investments in a haste, going by the herd mentality.
But this often becomes risky, as we get to know the recessionary picture when we are already deep in our eyeballs. Going full cash at such times could be too late. Hence it is wise to stay invested during the recession and if possible, keep buying more shares in buoyant pockets of opportunities.
Unlike growth stocks, what dividends can do is guarantee an income; this difference is the reason many investors prefer to buy dividend stocks over growth stocks. As seen in the past, even during recessions, some of the dividend stocks continue to pay investors the dividends. Its all about sticking to current portfolio with long term perspective, and closely monitoring sectoral trends and taking exposure to income players that are going relatively immune to the broader economic and market turmoil.
Typically seen, investors in Australia tend to be inclined towards the highest dividend-paying sectors like finance, basic material and consumer durables.
Evolution Mining: 68% uptick in FY20 final dividend
Australian gold mining company Evolution Mining Limited (ASX:EVN) announced that after a robust full-year result, the company is fulfilling its commitment under the policy (payout ratio targeting 50% of free cash flow) to pay a record final fully franked dividend for the current period, which will be 9 cents per share with the total of AU$153.4 million. This equates to total FY20 final dividend of 6 cents per share, representing a 68% uptick on FY19.
Amid record high gold prices, EVN has declared 38 per cent uptick in annual profit to a record AU$301.6 million. While, EBITDA increased ~41% to AU$102.94 million.
Coronavirus pandemic has hit many asset classes, but gold is undoubtedly performing well amongst all.
Evolution Mining currently owns four mines in Australia, with an underground gold mine in Canada. Notably, the Group’s free cash flow increased 86% during FY20/
With a gold production of 746,463 ounces in FY20, EVN’s production expectation for FY21 is about 670,000–730,000 ounces.
Evolution’s Executive Chairman Jake Klein, in the released statement, stated that the fiscal year 2020 was a good year for the company as it saw a significant improvement in safety and sustainability performance. The company recorded underlying net profit and free cash flow generation as well as dividends.
The company recently purchased Red Lake gold mine in Canada in 2019. Its mineral resource has been noted as 48.08 million tones at 7.10 grams per ton for 11 million ounces of gold — a much higher number than what Evolution provided at the time of purchase.
EVN soared ~5% mid-day to AU$6.0 on 14 August 2020 with a market capitalisation of AU$9.75 billion and an annual dividend yield of 2.8% (Source: ASX).
Class Limited: 2.5 cents FY20 final dividend, Smartcorp acquisition on the cards
Class Limited (ASX: CL1), Australia’s leading SMSF technology platform, has declaraed 2.5 cents as FY20 fully franked final dividend, payable on 18 September. It has also announced the execution of an agreement to acquire Smartcorp, a corporate compliance and documentation provider company.
The company will acquire shares of Smartcorp, for AU$4.2 million and will pay an upfront cash payment of AU$2.73 million on completion of this transaction, which is expected to be completed by 20 August 2020. Moreover, AU$1.47 million in Class shares are escrowed for 18 months. It also sees accretion in FY21 earnings.
Class marked 22% uptick in ARR to AU$46.8 million and 15% increase in operating revenue to AU$44 million. Besides, underlying EBITDA of 42% exceeded group’s target.
Class has a well-established and recognised market share of almost 30% in Australia’s SMSF administration software. Its customer retention rate is over 99%. The company’s strategic growth involves identifying new sectors for its product to support. The company also plans on introducing more strategic solutions for its current customers and its professional services sector.
As on 14 August 2020, the stock traded at AU$1.910 mid-day with a market capitalisation of AU$248 million and an annual dividend yield of 2.48% (as per ASX).
If looking for dividend stocks for retirement planning, Check these 5 Stocks for your Retirement Income Plan - CGF, TCL, LIC, CL1, TLS
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
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