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‘Dire’: Aussies lose thousands as dividends slashed

‘Dire’: Aussies lose thousands as dividends slashed. Source: Getty
‘Dire’: Aussies lose thousands as dividends slashed. Source: Getty

Australian shareholders are losing thousands of dollars in dividend payments, as nearly half of all companies cut their dividend payments as a result of the pandemic.

It’s still early days in this year’s reporting season, but 47 per cent of companies that have posted their earnings have cut dividends, compared to a norm of just 16 per cent, economist Shane Oliver said.

“It’s clear that company earnings have been hit hard by coronavirus,” Oliver said.

What are dividends?

Dividends are a distribution of a company’s profits to its shareholders.

So, if you buy shares in a company at $1.00 per share, and a dividend of 6 cents per share is paid per year, you would receive a 6 per cent return on your investment.

Then there are franking credits, which are an acknowledgment to the investor that tax has already been paid on the investment income in the form of company tax, and is a promise that when it’s tax time, the investor will see that tax offset.

But for retirees who don’t have a taxable income, they receive these franking credits as cash refunds.

Which companies have cut dividends?

Westpac revealed on Tuesday that, given the ongoing uncertainty of the economy, it had decided not to pay first-half dividends, after recording a net profit for the third quarter of $1.12 billion.

“While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains, particularly given the unpredictability of Covid-19 outbreaks and their local impacts,” CEO Peter King said.

Commonwealth Bank’s latest update revealed dividends would be reduced to $0.98 per share, which is a full-year dividend of $2.98 per share. That’s compared to a full-year dividend of $4.31 in 2019.

Rio Tinto decreased its dividends to $2.16 per share, or $5.65 for the year. That’s a drop from nearly $9 per share last year.

BHP similarly decreased its dividends from $0.99 per share in March to $0.78.

Telstra’s dividends per share remained unchanged, however, with shareholders receiving $0.16 per share per year, the same as in 2019.

Financial services company AMP actually gifted its shareholders a special dividend of 10 cents per share, totalling $544 million.

As reporting season continues, investment experts believe a significant number of ASX listed companies will continue to lower payout ratios as earnings and cash flows are impacted.

“Particularly with the virus resurgence and fresh lockdowns in Victoria providing an extended hit to many businesses with the second round of lockdowns having more lasting repercussions, and the global struggle to control Covid-19 providing a drag on local economy even as Australia on a relative basis has fared better in suppressing the virus,” said Saxo Markets strategist Eleanor Creagh.

Why slashing dividends hurts older Australians

With unemployment at a 22-year-high and interest rates at an all-time low, the need to pay out dividends has never been greater, according to the Martin Currie investment team.

“For retirees who depend on income from their investments, this is a dire situation,” they stated in a note.

“The income from a ‘low-risk’ term deposit cannot meet their cost of living, sending their capital on a downward spiral.”

In difficult economic times, and with an uncertain market outlook, the investment team said 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 team stated.

“Charities and Foundations, similar to retirees, also depend on dollar income to fund their own outgoings, most of which benefits society in the form of hospitals, scholarships and other charitable causes.

“For the investee companies in our Income portfolios, our message is clear – if a company has reasonable cashflow and a sound financial position, dividends should be paid.”

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