Addressing a media lunch in Sydney on Tuesday, Acadian portfolio manager Joanna Nash said while major bank stocks had seen a series of dividend cuts in recent months, yields were still high on a relative basis and the stocks’ risk return profile was reasonable for those looking for income specifically.
“The banks have cut [dividends], but if you look at them on a yield basis they don’t actually look too bad and they are still at that higher end,” Ms Nash said.
“If you look at their risk as well compared to some of the other equivalent stocks at that same yield, yes, they may have cut dividends, but they are still maintaining them at a reasonable level.
“So, you will still get people investing in the banks and we are going to chase the yield they provide as well, but it’s now not the guarantee it used to be previously.”
Ms Nash said the fund manager used a range of data points including price momentum, earnings consistency, dividend consistency and volatility to model whether high-yield stocks would have their dividends cut in the medium term, which helped yield-focused investors to avoid trapping their money in shares that surprised the market with a dividend cut.
“The way that it normally feeds through in the process is we will get a prediction of the likelihood that the company will cut dividends and then where we can usually hold up to 5 per cent of a particular stock, [the model] will say you can now only hold 4 per cent because there is a greater chance of a cut,” she said.
“There were a couple of stocks in reporting season that cut their dividends by 100 per cent that we didn’t hold at all because they had already been flagged, and there were some that cut them by 10 per cent which we were only holding up to 2 per cent.
“What we want to avoid are the ones that cut from paying a dividend to paying nothing, because we don’t want to be using our clients’ money to invest in those stocks if they are not going to pay that yield.”
