Dividend investors' minds are likely turning to the upcoming earnings season. Some may be considering adjusting their ASX share portfolios to position themselves for as big a payday as possible.
In a market downturn, ASX dividend shares can really show their worth.
Firstly, they deliver at least some sort of return for investors while share prices fall.
Secondly, they provide investors with peace of mind, as dividends are funded by profits. So they relate to business performance, not share price movement. This is comforting during times of extreme volatility.
James Gerrish is a senior portfolio manager at Shaw and Partners. Gerrish and his team manage domestic and international direct equity portfolios.
In a recent interview with Livewire, Gerrish predicted ASX 200 companies would pay about $40 billion in dividends this earnings season. That's a 5% increase on this time last year.
But he points out that the lion's share will be delivered by ASX mining shares and ASX bank shares.
Gerrish said:
The yield of the ASX 100 is 4.85% — but if you strip out the miners, you get a yield of 2.7%. That means nearly half of the expected yield is coming from the resources names.
The silver lining is those income investors have many more options within the two big sectors [of mining and banks] for finding optimum yield.
Which ASX dividend shares will deliver?
Gerrish says the ASX dividend shares that may pleasantly surprise are in the property and retail spaces.
He also suggests there may be some surprises among ASX shares that have fallen on negative sentiment.
Gerrish said: "You think about property, for one. There's a lot of armageddons built into property stocks, in my view. You've got the upside potential for distributions."
Gerrish says real estate investment trust (REIT)s Dexus Property Group (ASX: DXS) and Stockland Corporation Ltd (ASX: SGP) may outperform.
Gerrish says ASX retail shares have also suffered share price declines due to negative sentiment.
But investors might be pleasantly surprised by these ASX dividend shares in August.
For earnings certainty and some forward guidance, Gerrish nominates Metcash Limited (ASX: MTS) and Wesfarmers Ltd (ASX: WES).
On the other hand, Gerrish is expecting potential disappointment for income investors holding ASX resources shares and ASX energy shares.
Gerrish said:
For any downside surprises, they come no bigger than the commodities sector. Earnings are high so dividend expectations are high. I think there could be some disappointment on the dividends announced by resources, energy companies, and the like.
Are expectations too high?
Gerrish says yes:
I think we'll go into a period of earnings downgrade and re-rates to the downside.
You'll see a transition back to more normal multiples.
