Press Release of the Day – 30th April

With UK plc cutting dividends, these are the new ‘dividend heroes’ for investors

Investors should be looking at the new breed of ‘dividend heroes’ as traditional UK income paying businesses suspend or scrap their dividends in the wake of the Covid-19 lockdown, according to Helen Bradshaw, portfolio manager at Quilter Investors.

Investors have seen the likes of ITV, Stagecoach and Marks & Spencer cut their dividend payments, and with the banking sector now suspending their distributions for the immediate term no sector appears to be immune from the crisis when it comes to dividends.

However, Bradshaw believes this gives investors an opportunity to look at different investment sectors in order to achieve a sustainable income yield over the long-term, allowing them not to rely solely on the traditional dividend paying businesses from the FTSE 350.

“It is not surprising that in this period of lockdown companies are looking to preserve capital, but investors need to remember not to rely solely on one sector or region for their income as it can easily be impacted by events such as these.

“While the UK remains important to investors from an income perspective with many big businesses keeping their dividend in place, they must remember that payouts here were already highly concentrated to just a handful of companies, so volatility in the markets will always have an impact.

“Just like with your overall investment allocation, your income stream needs to be diversified in order to cushion your portfolio from the impact of these cuts. There are many other sectors out there that can provide a similar yield to the FTSE 100, so having a blend of assets and geographies, including the UK, will give investors the additional benefits of dividend cover, diversification and liquidity.”

Below, Helen picks three sectors and funds she believes to be the new ‘dividend heroes’ that can help diversify and protect your income from the cuts we are seeing in the market.

Asian equities

“While Asia is not a place traditionally associated with a strong dividend culture, many of the corporate governance reforms we have seen in this region have encouraged one to begin to flourish. As such, we expect less dividend cuts in this area as the pay-out ratios are lower and many of the businesses have taken on low amounts of leverage. This should provide investors with a feeling of stability in knowing what yield to expect to receive. Furthermore, as we emerge out of this crisis these businesses are also more likely to grow their dividends given the room they have to do so, compared to businesses in the UK.”

Fund pick: Schroders Asian Income fund

Infrastructure

“Infrastructure investments, particularly those focused on availability based assets, tend to be less correlated to the wider stock market, meaning in times of a downturn they should offer an element of protection. Furthermore, the visibility and security of their underlying cashflows are hard to replicate elsewhere and should prove an added draw to investors in the current environment. Many of the investment trusts offering exposure to this asset class have seen premiums contract year to date and with income yields between 4-5% and with healthy levels of dividend cover, these are attractive investments for people looking for a sustainable income stream.”

Fund pick: International Public Partnerships Ltd (INPP)

Real Estate

“Despite the UK shutdown calling into question the rental income streams for most companies in the sector and many have had to suspend dividends, there are some exceptions out there that investors could look to for income. There are some specialist real estate investment trusts which have more predictable business models as well as the benefit of government backed streams of income through tenants such as the NHS, meaning investors can feel confident that payments will still be made during this difficult time. As such these could be good diversifiers to income streams.

Fund pick: Assura (AGR)

– Ends –

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