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How big bank dividend cuts are hurting this ASX stock

Large dividend cuts by several of the ASX big banks have cut into the profits of Bki Investment Co Ltd (ASX: BKI).

The listed investment company’s half year results provide a good snapshot of major trends that are impacting on returns of ASX investors.

Management posted a modest 0.8% increase in its first half ordinary investment revenue to $27 million but a 3.8% drop in net profit to $24.5 million.

Bank dividends dive

BKI blamed the significant reduction in dividends paid by Westpac Banking Corp (ASX: WBC) and National Australia Bank (ASX: NAB) for the weak result.

But the company was quick to point out that dividend increases from a range of other stocks was just enough to offset the dividend losses from the two banks.

These stocks include Magellan Financial Group Ltd (ASX: MFG), BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG), Woolworths Group Ltd (ASX: WOW), New Hope Corporation Limited (ASX: NHC) and Harvey Norman Holdings Limited (ASX: HVN).

Don’t bank on dividend growth

Even if you aren’t a shareholder in BKI, there are two key takeaways from this news. The first is that investors should be depending a lot less on dividends from the big banks and look at other high yielding stocks.

The other factor is that the dividend growth we’ve experienced in 2019 may not be repeated again. This also means that you shouldn’t count on offsetting falling dividend payments from the banks with those from other companies.

More dividend cuts

The cuts to payouts from the big banks are likely to remain a feature in 2020, while a larger number of companies that have lifted dividends recently probably won’t have the firepower to repeat that performance.

There’s also a third takeaway from BKI’s results. It relates to the plunge in profits if you included its special investment revenue. The firm’s net profit plummeted 45.9% to $25.5 million for the half if this line item is included.

Capital returns to slow

Special investment revenue refers to returns booked via special dividends and other capital returns from listed investments.

Many S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stocks rushed to hand back fully-franked cash to shareholders on worries that federal Labor opposition would win the election. The party was threatening to restrict this tax privilege.

That worry subsided along with capital returns. Investors shouldn’t count on a resurgence of such programs for the foreseeable future.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, and Westpac Banking. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.