The coronavirus crisis has already led to some companies on the S&P/ASX 200 Index (ASX: XJO), either suspending or reducing their dividend payments this year.
Our big four banks in particular have come under the spotlight in this respect and this has contributed to recent sharp price corrections. For example National Australia Bank Ltd. (ASX: NAB) has cut its dividend by around 50% and Australia and New Zealand Banking Group (ASX: ANZ) has deferred its FY2020 dividend payment decision.
However, I think it is very important to keep these developments in perspective.
The coronavirus crisis is a once in a century event and is triggering what looks likely to be one of the worst, if not the worst, financial crises that the world has faced since the great depression.
I believe that it is more than likely that the big four banks will resume their normal dividend payments in 2021, and in any case the financial sector is much more prone to economic downturns than many other industry sectors on the ASX.
For example, telecommunications is one sector that is likely to see minimal, if any, reduction to dividend payments this year, due to the continued strong demand for telecommunication services from companies such as Telstra Corporation Ltd (ASX: TLS).
With interest rates looking to remain at historic lows for at least the next 5 years, resulting in the annual returns from term deposits barely beating inflation, I believe that high dividend paying shares are still the best way to secure a reliable investment stream.
Rental landlords also under financial pressure
You may ask, what about rent from residential property?
Well, residential landlords are also under increased financial pressure this year, with the Australian Government's decision to suspend any tenant evictions for at least 6 months, and landlords and tenants asked to negotiate rental agreements if tenants run into financial difficulty and can't pay their rent.
This decision is quite understandable, and nobody want to see tenants out on the street because they have lost their job due to this once in a lifetime event.
However, many people tend to forget that residential landlords are often just average mum and dad investors, often relying on that rental income to support retirement or support their substantial mortgages. In the latter case, if rental income suddenly stops suddenly, property investors suddenly lose their ability to meet their mortgage payments.
The issue is compounded if they in turn lose their jobs. This can lead to mortgage defaults, putting further downward pressure on residential property prices.
Where to best invest for high dividends right now?
There are plenty of great high dividend paying companies out there.
I have already mentioned the telecommunications industry.
I would also look to companies with strong diversification such as Wesfarmers Ltd (ASX: WES), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).
In addition, take a look at the retail food sector with companies such as Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) showing strong growth this year.
Not only do all these companies pay attractive fully franked dividends, I believe that the impact the coronavirus crisis will have on their ability to pay dividends this year will be minimal.
