In our State of Play article last quarter, we hypothesized about the likelihood of ASX-listed companies paying dividends. In our end of financial year summary, we indicated that August’s earnings season would provide clearer direction for our sharemarket.
I’m pleased to report that there have been some positive developments in both of these areas. While many companies have lowered or deferred their dividends, three of the four major banks have declared their intentions to resume paying dividends, albeit at a reduced, cautious rate. Earnings season is just about over, and there have been minimal nasty surprises, which has meant a relatively calm sharemarket for August.
The winding back of government stimulus (JobKeeper) next month is perhaps the next milestone to look for in relation to your shares. Maybe, just maybe, we have seen the worst of it. Perhaps the sharemarket is comfortable with it’s current position, and is settling down. Daily movements are far less volatile, and individual companies are busily putting in place their strategies to get through to the other side. Investors are accepting that the dividend yield of most holdings will be impacted. This will in turn impact many retiree’s income. Listening to many CEOs and CFOs discuss their results in the last month, they are all of the view that lower dividends will be temporary and they understand the importance of managing shareholder expectations. They have mostly reported increased activity in their respective industries, and their view is that the economic recovery is well underway.
So what does all this mean for investors?
The US market has pretty much recovered to it’s pre-COVID high, whereas the Australian market is still some 15% below its’ late February 2020 high. Our multi-asset sector portfolios had very flat 2019/2020 years. As for shares specifically, there is plenty of buzz in the buy now, pay later sector, with Afterpay and Zip hitting record highs, while the iron ore and gold price is keeping the resources sector buoyant. There is still plenty of value to be found though, with the banking sector remaining subdued and no-one wanting to know the travel sector (for obvious reasons). With panic selling seemingly over, distressed prices across the entire market such as we saw in March seem a distant memory. Market corrections are likely in coming months, but in our view, these present buying opportunities. Capital raisings are likely to continue.
Those that hold high quality portfolios need to continue to be patient, and those with bank-heavy portfolios would be best off wiping 2020 from their memory and focusing on next year. Our mantra of “consider the position the company will return to, not the position it is in now” continues to ring true.
2020 has introduced us to many first-time sharemarket investors, and we have enjoyed educating so many people about this topic. If you’d like us to partner with you in building your own bespoke share portfolio, contact one of our advisers today!
