Martin Currie Australia last week, on August 6, sent a letter to the chairs of all of the companies in which the firm invests in Australia and New Zealand for its income strategies, emphasising what it has relayed in meetings about the “power of dividends” for investors – especially for retirees, charities and foundations. Dividends should be maintained where practicable.
The letter struck an immediate positive chord with Martin Currie’s clients. Kimon Kouryialas, Melbourne-based global co-head of distribution, said: “The letter from Reece and Will sends a clear message to the investee companies in our income-focused strategies and funds. We were speaking on behalf of our clients who appreciate that we are going into bat for them, particularly in this difficult period.” The Martin Currie contact with those companies comes just prior to the August 2020 reporting season and consideration of dividends by most listed companies.
Reece Birtles, CIO of Martin Currie Australia, and Will Baylis, portfolio manager, said in their letter that the shutdown of the Australian economy had exacerbated the already-downward trend of interest rates to record lows. “For retirees who depend on income from their investments, this is a dire situation,” they said. “The income from a ‘low-risk’ term deposit cannot meet their cost of living, sending their capital on a downward spiral.”
Martin Currie Australia has a long history of designing investment products for a client’s income needs. In May 2010, the firm launched the ‘Equity Income’ strategy, which was shortly followed by the ‘Real Income’ strategy in December the same year. Today, it also offers an ‘Ethical Income’ version of the ‘Equity Income’ strategy, and an ‘Asia Pacific and Global’ version of the ‘Real Income’ strategy. The focus of each of these strategies has been to provide a high regular dollar-income sum to retirees which grows over time.
“During this COVID-19 crisis, we have worked hard to minimise the income drawdown as much as possible and invest in high-quality companies that have the strong balance sheets and earnings that can afford them to continue to pay out strong dividends,” the letter says. “As such, it concerns us to hear that many of the high-quality ASX-listed companies that we invest in for our clients are equivocating about whether to pay dividends, even when they do have sufficient cashflow and means to pay those dividends.”
Birtles and Baylis say: “If a company has reasonable cashflow and a sound financial position, dividends should be paid. In such difficult economic times, and with an uncertain market outlook, the benefits of both dollar income and franking credits to retirees cannot be underestimated. Retirees are key beneficiaries of these dividends, and they have worked hard to have sufficient capital to fund their own retirement.
“Charities and foundations, similarly to retirees, also depend on dollar-income to fund their own outgoings, most of which benefits society in the form of hospitals, scholarships and other charitable causes. The lack of alternatives to equities for these investors who need a high dollar income stream, and the consequences for the whole economy and future generations should all retirees be forced to be on the age pension in the future are stark. The need for companies to pay out their dividends has never been greater.”
Note: Martin Currie is a sponsor of Investor Strategy News. Any opinions expressed, though, may be those of the author and not necessarily those of Martin Currie.