2020 has been a tough year for ASX dividend shares. The coronavirus pandemic has crimped economic growth and triggered recessions across the world.
We saw many Aussie companies slash dividends in the August earnings season as cash flow dried up. However, despite the challenges, I think ASX dividend shares are still king in 2020.
Why investors are selling ASX dividend shares
Finance theory tells us that dividends are 'sticky'. All that really means is that companies tend to avoid cutting dividends as much as possible.
A dividend increase signals that management is confident about future cash flow. Given the negative signal that a cut sends to the market about future profitability, boards rarely raise dividends without being quite sure of future output.
However, COVID-19 has changed that as we saw companies across the board slash distributions. That means investors who owned ASX dividend shares for income have sold down their holdings in the hunt for growth.
After all, if income is off the table then maybe capital gains are worth a look.
Why companies like Telstra are still king
I still think ASX dividend shares have a place in a diversified portfolio. Take a company like Telstra Corporation Ltd (ASX: TLS) which has paid consistent dividends for years.
Despite challenges from COVID-19 and the NBN, Telstra maintained its full-year dividend at 16 cents per share.
That's good news for investors in the current times when solid dividends are hard to come by.
I also subscribe to the 'bird in the hand" theory, that cash in the form of dividends today is preferred to unknown cash from growth tomorrow.
Of course, not all ASX dividend shares are created equal. I think it pays to be strategic about where you're hunting for dividends in industries and sectors.
ASX gold shares like St Barbara Ltd (ASX: SBM) have performed strongly this year. That means with some smart picks, investors can still have both capital gains and dividends in 2020.
The other sector that has caught my eye is Consumer Staples. I think companies like Bega Cheese Ltd (ASX: BGA) and Coles Group Ltd (ASX: COL) can deliver strong earnings and pay tasty dividends in the next 12 to 18 months.
Foolish takeaway
The dividend vs growth debate is as old as investing itself. However, I think when times are tough it can be good to have some reliable dividend shares in your portfolio.
