The August earnings season has delivered many surprises – some good and some bad. But as an investor who likes to hunt for dividend income myself, what has really stood out for me right now is the dearth of robust dividend income stemming from the ASX. The coronavirus pandemic has plenty to answer for.
We already knew the ASX banks were in trouble in 2020. But now, we know that Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking GrpLtd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) will pay dividend yields so low that investors might have thought it was a joke if you had told them last year.
I never thought I'd see the day where ANZ boasts a forward, annualised dividend yield of 2.73% (based on the company's recently-announced 25 cents per share dividend). And Westpac Banking Corp (ASX: WBC) isn't paying an interim dividend at all.
It's not just the ASX banks though.
Income carnage on the ASX
Ramsay Health Care Limited (ASX: RHC), a company that used to hold a 20-year streak of increasing its dividends annually, ran dry this year and broke its streak. Just this morning, Medibank Private Ltd (ASX: MPL) announced that its track record of increasing dividends would also end with a trim. This is a track record Medibank has maintained since floating back in 2014.
Mining giants like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have also cut their payouts in 2020, despite record iron ore prices.
And former 'defensive' companies like Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Coca Cola Amatil Ltd (ASX: CCL) haven't escaped the ravages of COVID-19. All of these companies have slashed their payouts in 2020. Sydney Airport probably won't be paying a dividend at all this year.
Even utilities (which supposedly benefit from their 'inelastic' energy services) like AGL Energy Limited (ASX: AGL) and Origin Energy Ltd (ASX: ORG) haven't been spared. Origin also announced a dividend trim this morning. AGL has bravely maintained its dividend but admits it will be paying out around 100% of its earnings in the coming years to fund it.
Where should investors turn for ASX dividend income?
It's a tough time for ASX dividend investors, no doubt. Many investors, such as retirees, rely on regular payments from their shares to fund their lifestyles. So where should these investors turn in this Brave New World?
My recommendation is to look for companies with a reasonable chance of maintaining or even growing their dividends in 2020 as a start. Washington H. Soul Pattinson & Co Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Coles Group Ltd (ASX: COL) and APA Group (ASX: APA) come to mind.
You can also look to managed investments as an alternative as well. Income-focused exchange-traded funds (ETFs) are a route you could explore. For example, the Vanguard Australian Shares High Yield ETF (ASX: VHY) is specifically purposed to maximise potential income by holding a liquid basket of dividend-paying shares. It has already reduced its exposure to the ASX banks in 2020, and is instead piling into BHP, Wesfarmers Ltd (ASX: WES) and Telstra Corporation Ltd (ASX: TLS).
Other than ETFs, there is a bevvy of Listed Investment Companies (LICs) that focus on income. Australian Foundation Investment Co Ltd (ASX: AFI) and Argo Investments Limited (ASX: ARG) are 2 options that have held payouts at reasonably steady levels. WAM Research Limited (ASX: WAX) is another LIC I like for dividend income. It has a current trailing yield of 6.96%, which comes fully franked. This LIC also has enough profits in reserve to fund this dividend for at least a couple of years.
Foolish takeaway
It's a tough time to be an ASX dividend investor to be sure, perhaps more than any other time in living memory. Still, there are yields to be found if you know where to look. And I wouldn't start with the familiar names. 2020 has certainly changed the income game.
