Dividend shares will make a roaring comeback this year, according to one fund manager.
The Australian share market traditionally pays out higher dividends than its international counterparts because of the favourable tax laws. The high representation on the ASX from big banks and mining companies also helps.
But Tribeca Investment Partners portfolio manager Jun Bei Liu said this week that those payouts were slashed when the COVID-19 pandemic arrived.
"That's a reason why Australian equities underperformed for a big part of ."
With no idea as to how the virus would impact their bottom lines, businesses had to understandably preserve capital. Many companies popular with income-heavy retiree investors such as Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS) reduced their dividends last year.
However, Liu predicted the good times would be back soon.
"In 2021, we're expecting a dividend increase of 30% in Australia in aggregate," she told a GSFM briefing.
"In the low bond yield and low interest rate environment, it looks incredibly attractive."
The sectors to enjoy massive dividend boosts
In excess of the market-wide 30%, Liu named specific sectors that would reap the biggest yield increases.
"The materials sector – the dividend will increase close to 70%," she said.
"Even with half the year not paying much of a dividend from the banks, they will pay close to 8% by the end of June."
Real estate investment trust (REIT) and property-related shares would also see meaningful gains, Liu predicted.
"They will receive strong retail support, as well as from institutions."
This is despite S&P Global Ratings' depiction of the REIT sector as potentially sustaining permanent damage from the virus.
"S&P Global Ratings expects the fallout from the pandemic to extend well beyond lower rental collections over the next few months," the analyst agency reported last week.
"The structural pain will prolong as faster adoption of e-commerce and changing consumption patterns continue to buffet the sector."
Structural growth winners also worth Liu's time
Liu's fund will not just be looking at dividend shares this year though.
She was also keen to point out many growth companies will benefit from structural changes that arose from, or were accelerated by, the coronavirus pandemic.
"My view is that a portfolio will always have to have structural winners – because they will future-proof your portfolio," said Liu.
"We like market leaders. We like companies that have a demonstrable track record, as well as a continually growing Total Addressable Market around the world."