As the mainstay of many superannuations accounts for self-funded retirees and various other income investors, the banks have axed their long-awaited semi-annual dividends. Being cut by up to 100% in some cases, they have never more important time to consider other strategies for your much-needed stock market income play.
Dividends axed – with blood on the floor
Let’s take NAB as an example given widely held stocks on the ASX. The first to make a cut dividends whopping 62%. After poor earnings, increases the provision of bad debt, this sent shockwaves through the market. If we take other examples like CBA and Westpac – these two have cut their dividends by 50% and 100% respectively. Not to mention a bearish stock price movement over the last six months, Wow! Can you imagine your income cut by 100%?
In Addition, Andrew Baxter states self-funded retirees of the least represented groups in Australia who rely on businesses. Given over 1.9 million fully or partially self-funded retirees need to pivot their investment strategy has more crucial.
Where it went wrong for the Banks
It’s fairly prudent to say that the big 4 banks are pretty much a representation of our economy. Because as our economic output slows amidst the COVID-19 pandemic, and the transaction for the banks like borrowing becomes scarce; then interest rates continue to remain default rates on loans as Aussies find themselves with debt and jobless.
Andrew Baxter says, why big banks have such declining profits and cut their dividends. They need to keep their cash to put out any spot fires moving forwards. Times are tough now, and for anyone waiting on their fully franked dividend every 6 months for income, we wouldn’t suggest holding your breath.
The bleak outlook ahead
In times like the COVID-19 pandemic, our economy afloat of paramount concerns not only the governments but also banks. To keep our economy ticking over, we need people to buy houses and invest in businesses – which they can only do a loan from the bank after the Royal Commission the whole implementation of the Responsible Lending Legislation, and banks have to watch the regulator and customers in time where millions of Aussies suffer from financial hardship. But banks predict to struggle in the years to come to turn the profits they once did. Less loans mean less revenue more provision of bad debt.
The end result, a continual and consistent cut to dividends for their shareholders. Host Andrew Baxter states that Banks must start lending again to get the economy moving, which allows them back some cash to release as dividends.
Income alternatives – cash flow on demand
Let’s make this clear, being stubborn and deciding to ‘wait this period out’ will only cause you more pain. The opportunity cost of holdings stocks like banks that lose value, won’t pay a dividend comes massive. Host Andrew Baxter suggests two methods for much-needed income play moving forward; first to broaden your stratosphere of dividend stocks. Take JB HIFI an example, paid out cracking dividends fully franked given profits increased by 40%. As a possibility employing an income strategy, the options market using covered calls may allow you to collect an income of 2-4% every couple of weeks, rather than every 12 months form of a dividend.
Using Cash Flow on Demand, Andrew Baxter teaches at Australian Investment Education. With this strategy, you’ll learn at income and covered call. This is the time to refocus your strategy and be nimbler in your investment strategies.
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