1 00:00:03,450 --> 00:00:07,159 Sean Aylmer: Welcome to the Fear and Greed Daily Interview, I'm Sean Aylmer. A 2 00:00:07,160 --> 00:00:09,980 Sean Aylmer: common theme of reporting season this year was a return 3 00:00:09,980 --> 00:00:14,079 Sean Aylmer: to higher dividends - leaving plenty of investors happy. Now, a 4 00:00:14,190 --> 00:00:18,020 Sean Aylmer: new report reveals just how strong Australia's dividend rebound has been. 5 00:00:18,520 --> 00:00:22,099 Sean Aylmer: According to Janus Henderson, dividends from Australian companies are growing 6 00:00:22,340 --> 00:00:25,829 Sean Aylmer: four times faster than the rest of the world. Janus 7 00:00:25,829 --> 00:00:29,560 Sean Aylmer: Henderson is a global asset manager with around $ 580 billion 8 00:00:29,560 --> 00:00:33,530 Sean Aylmer: in assets under management. Jane Shoemake is the Client Portfolio 9 00:00:33,530 --> 00:00:36,790 Sean Aylmer: Manager of Global Equity Income at Janus Henderson and she 10 00:00:36,790 --> 00:00:39,440 Sean Aylmer: joins me this morning from London. Jane, welcome to Fear 11 00:00:39,590 --> 00:00:39,970 Sean Aylmer: and Greed. 12 00:00:40,350 --> 00:00:41,020 Jane Shoemake: Morning. 13 00:00:41,370 --> 00:00:44,570 Sean Aylmer: Why is Australia so good at dividends? Four times? That's 14 00:00:44,570 --> 00:00:47,000 Sean Aylmer: a massive leap up on other jurisdictions. 15 00:00:47,710 --> 00:00:49,920 Jane Shoemake: It's really brilliant, isn't it? To see dividends being so 16 00:00:49,920 --> 00:00:51,790 Jane Shoemake: strong in Australia. But we have to put that in 17 00:00:51,790 --> 00:00:55,810 Jane Shoemake: some context. Last year when we had the pandemic, Australia 18 00:00:56,130 --> 00:00:58,570 Jane Shoemake: was one of the worst countries in the world for dividend cuts 19 00:00:59,000 --> 00:01:02,220 Jane Shoemake: and it saw a very sharp fall in the dividends that were being 20 00:01:02,220 --> 00:01:05,800 Jane Shoemake: paid over 40%. So there were a couple of countries 21 00:01:05,800 --> 00:01:08,730 Jane Shoemake: like Australia that was the UK, France was in there as well, 22 00:01:08,730 --> 00:01:12,800 Jane Shoemake: where dividends were really, really just decimated because of the pandemic. 23 00:01:13,150 --> 00:01:16,009 Jane Shoemake: So what we're seeing this year and very encouragingly is 24 00:01:16,010 --> 00:01:18,520 Jane Shoemake: a very strong bounce back from that very sharp fall. 25 00:01:18,830 --> 00:01:21,620 Sean Aylmer: Okay. If we just take a step back, Australia generally 26 00:01:21,620 --> 00:01:24,940 Sean Aylmer: is a relatively high dividend paying country? That's a question. 27 00:01:25,260 --> 00:01:28,450 Jane Shoemake: Yes, it's a high yielding country and again, up there 28 00:01:28,450 --> 00:01:31,459 Jane Shoemake: with the UK. And I think in particular, what happened is you 29 00:01:31,880 --> 00:01:34,830 Jane Shoemake: saw those high yielding countries having to cut their dividends 30 00:01:34,930 --> 00:01:38,410 Jane Shoemake: a lot. In particular, the banks were restricted from some 31 00:01:38,410 --> 00:01:42,230 Jane Shoemake: of their payments and they're an important part of the Australian market. And then 32 00:01:42,230 --> 00:01:45,580 Jane Shoemake: other parts consumer discretionary that obviously some of the retailers, 33 00:01:45,580 --> 00:01:48,059 Jane Shoemake: the travel and leisure, they had to cut their dividends drastically 34 00:01:48,060 --> 00:01:49,041 Jane Shoemake: or not pay them at all. 35 00:01:49,041 --> 00:01:49,311 Sean Aylmer: Yeah. 36 00:01:49,960 --> 00:01:52,690 Jane Shoemake: And so really what we saw was a resetting of 37 00:01:52,690 --> 00:01:56,590 Jane Shoemake: dividend expectations. And I think also that Australia had a very 38 00:01:56,590 --> 00:01:59,620 Jane Shoemake: high payout ratio. It paid out a lot in dividends. 39 00:02:00,170 --> 00:02:01,890 Jane Shoemake: The pandemic has given the companies an opportunity to sort 40 00:02:02,620 --> 00:02:03,910 Jane Shoemake: of reset that level. 41 00:02:04,300 --> 00:02:06,760 Sean Aylmer: Okay. So as we go forward, I mean, with the 42 00:02:06,770 --> 00:02:10,960 Sean Aylmer: bounce back, what sectors particularly have come back hard in 43 00:02:10,960 --> 00:02:12,850 Sean Aylmer: terms of dividends and paying well? 44 00:02:13,280 --> 00:02:16,110 Jane Shoemake: So this year we have seen extraordinary results from the 45 00:02:16,110 --> 00:02:19,700 Jane Shoemake: mining companies. They posted record profits, and that then fed 46 00:02:19,700 --> 00:02:22,740 Jane Shoemake: through to not just regular dividend payments, but also some 47 00:02:22,740 --> 00:02:28,110 Jane Shoemake: special dividends so BHP, Rio amongst others paid a lot 48 00:02:28,110 --> 00:02:31,510 Jane Shoemake: more out in dividends than anyone had anticipated. And that's 49 00:02:31,510 --> 00:02:34,470 Jane Shoemake: really on the back of the booming commodity price market. 50 00:02:35,090 --> 00:02:38,430 Jane Shoemake: Australia clearly is very exposed to the mining sector, and 51 00:02:38,430 --> 00:02:41,810 Jane Shoemake: so that has massively helped with this rebound and then the banks were the 52 00:02:41,810 --> 00:02:45,480 Jane Shoemake: other one, where we've seen dividends being reinstated as regulatory 53 00:02:45,480 --> 00:02:49,190 Jane Shoemake: restrictions were eased. So banks and miners have been an absolute 54 00:02:49,190 --> 00:02:52,050 Jane Shoemake: key driver with that bounce back for Australian dividends this year. 55 00:02:53,020 --> 00:02:55,260 Sean Aylmer: But very possibly it could actually be a one- off. 56 00:02:55,260 --> 00:02:58,019 Sean Aylmer: Is that right? Particularly in the mining sector where you 57 00:02:58,020 --> 00:03:01,880 Sean Aylmer: had these ridiculously high commodity prices, particularly iron ore in BHP, 58 00:03:01,880 --> 00:03:05,510 Sean Aylmer: Rio and Fortescue Metals case and therefore hence, the special 'divs' (dividends). 59 00:03:06,389 --> 00:03:08,720 Jane Shoemake: Yeah. I mean, it's interesting. Iron ore is one of 60 00:03:08,720 --> 00:03:12,350 Jane Shoemake: the commodities that's actually fallen quite sharply in recent months. And so 61 00:03:12,350 --> 00:03:14,830 Jane Shoemake: clearly that's not going to be such a positive for 62 00:03:14,830 --> 00:03:17,540 Jane Shoemake: next year. So a lot of the mining companies now 63 00:03:17,540 --> 00:03:20,160 Jane Shoemake: have a fixed payout ratio. That means they'll distribute a 64 00:03:20,160 --> 00:03:23,200 Jane Shoemake: certain amount of their profits in dividends and that's fixed. 65 00:03:23,520 --> 00:03:24,991 Jane Shoemake: And therefore if their profits fold, their dividends will fold. 66 00:03:24,991 --> 00:03:25,501 Sean Aylmer: Yeah. 67 00:03:26,230 --> 00:03:29,110 Jane Shoemake: So I do think it's highly unlikely that we're going to see the same 68 00:03:29,110 --> 00:03:31,860 Jane Shoemake: level of growth next year in miners as we have 69 00:03:31,860 --> 00:03:34,730 Jane Shoemake: seen this year. So it's very hard to forecast what 70 00:03:34,730 --> 00:03:37,080 Jane Shoemake: commodity prices are going to do, but I do think that will 71 00:03:37,150 --> 00:03:39,880 Jane Shoemake: be a headwind going into 2022 just because it's been 72 00:03:39,880 --> 00:03:41,450 Jane Shoemake: such a huge peak this year. 73 00:03:41,920 --> 00:03:44,540 Sean Aylmer: Okay. So when you're investing, and for people like me 74 00:03:44,540 --> 00:03:47,200 Sean Aylmer: who don't have the experience or knowledge that you do, 75 00:03:47,200 --> 00:03:50,560 Sean Aylmer: I mean, how many people do invest on that income 76 00:03:50,630 --> 00:03:52,590 Sean Aylmer: on the yield? Is it a big part of the market? 77 00:03:53,260 --> 00:03:56,560 Jane Shoemake: Clearly, there's some investors where yield is very important. Income is important. And particularly 78 00:03:57,760 --> 00:04:01,950 Jane Shoemake: for retirees, for pensioners, they want that guaranteed income. And 79 00:04:01,950 --> 00:04:05,280 Jane Shoemake: therefore, I think it's really very important to be diversified. 80 00:04:05,800 --> 00:04:08,090 Jane Shoemake: And one of the problems with the Australian market, if 81 00:04:08,090 --> 00:04:10,211 Jane Shoemake: you only invest there is, it is very, very concentrated. 82 00:04:10,211 --> 00:04:11,190 Sean Aylmer: Yeah. 83 00:04:11,640 --> 00:04:13,880 Jane Shoemake: So the miners and the banks are going to make 84 00:04:13,880 --> 00:04:16,810 Jane Shoemake: up about 80% of all the income paid in the 85 00:04:16,810 --> 00:04:17,320 Jane Shoemake: Australian market. 86 00:04:17,320 --> 00:04:17,900 Sean Aylmer: Really? 87 00:04:18,430 --> 00:04:22,359 Jane Shoemake: And that's incredibly concentrated. So what we would argue is 88 00:04:22,410 --> 00:04:26,039 Jane Shoemake: yes, have some exposure to domestic Australian equities, but also 89 00:04:26,040 --> 00:04:29,760 Jane Shoemake: have some diversification by going global and getting access to 90 00:04:29,760 --> 00:04:32,980 Jane Shoemake: some of those other dynamics. Because clearly if the banks 91 00:04:32,980 --> 00:04:35,810 Jane Shoemake: or the miners are hit again, your income very much 92 00:04:35,810 --> 00:04:36,820 Jane Shoemake: gets impacted. 93 00:04:37,240 --> 00:04:41,860 Sean Aylmer: Okay. So, I want to come to international options in a moment. You 94 00:04:41,860 --> 00:04:44,980 Sean Aylmer: said that the resources have a fixed payout ratio. So 95 00:04:45,180 --> 00:04:47,810 Sean Aylmer: a fixed amount of earnings. Is that normal? Are the 96 00:04:47,810 --> 00:04:50,680 Sean Aylmer: banks the same? Are the other dividend stocks in Australia, 97 00:04:50,680 --> 00:04:53,089 Sean Aylmer: the telcos, things like that, are they the same? Or 98 00:04:53,089 --> 00:04:54,419 Sean Aylmer: do they mostly float a bit? 99 00:04:54,920 --> 00:04:56,839 Jane Shoemake: The miners didn't used to have a fixed one. They 100 00:04:56,839 --> 00:04:59,010 Jane Shoemake: used to try and constantly grow their dividends, but that 101 00:04:59,010 --> 00:05:01,680 Jane Shoemake: put them under a lot of stress. When clearly commodities prices 102 00:05:01,680 --> 00:05:03,660 Jane Shoemake: fell very sharp and they were desperately trying to pay 103 00:05:03,660 --> 00:05:06,170 Jane Shoemake: out a level of dividend. So they've just taken that pressure 104 00:05:06,170 --> 00:05:09,490 Jane Shoemake: away from them. Other companies tend to try and pay 105 00:05:09,490 --> 00:05:12,050 Jane Shoemake: a dividend, sustain it and then grow it. But those 106 00:05:12,050 --> 00:05:14,739 Jane Shoemake: will be with businesses that are less cyclical. And therefore 107 00:05:14,740 --> 00:05:17,589 Jane Shoemake: don't get these sort of very sharp variations in profitability 108 00:05:17,589 --> 00:05:19,670 Jane Shoemake: that the miners can experience. 109 00:05:19,830 --> 00:05:21,929 Sean Aylmer: Okay. So where do the banks fit into that? Because it's funny, 110 00:05:21,930 --> 00:05:26,100 Sean Aylmer: banks seem to be becoming more cyclical than I used to think of them. 111 00:05:26,980 --> 00:05:29,690 Jane Shoemake: I think the banks to be fair in Australia have 112 00:05:29,690 --> 00:05:33,520 Jane Shoemake: always paid out a very high dividend. And that was 113 00:05:33,520 --> 00:05:35,760 Jane Shoemake: a very high payout ratio. And they were known for 114 00:05:35,760 --> 00:05:38,360 Jane Shoemake: that. Then clearly what we had in the pandemic, which 115 00:05:38,360 --> 00:05:40,310 Jane Shoemake: is not what we've had in previous crisis is we've 116 00:05:40,310 --> 00:05:43,770 Jane Shoemake: had regulatory intervention. Where the regulators come in and said, 117 00:05:43,770 --> 00:05:45,940 Jane Shoemake: look, we are really quite concerned about what's happening with 118 00:05:45,940 --> 00:05:48,239 Jane Shoemake: this pandemic. And clearly none of us knew what the 119 00:05:48,310 --> 00:05:48,991 Jane Shoemake: outlook was going to be. 120 00:05:48,991 --> 00:05:48,991 Sean Aylmer: Mm (affirmative) 121 00:05:48,991 --> 00:05:53,470 Jane Shoemake: So we want you to be very, very conservative and really think about how 122 00:05:53,470 --> 00:05:57,390 Jane Shoemake: much you payout to shareholders. And I think what's happened then for the banks 123 00:05:57,390 --> 00:06:01,060 Jane Shoemake: in Australia, is that allowed them as well, to just reset 124 00:06:01,140 --> 00:06:03,080 Jane Shoemake: that dividend, I would argue they were paying out too 125 00:06:03,080 --> 00:06:06,339 Jane Shoemake: much in dividends actually. And they needed to bolster their 126 00:06:06,339 --> 00:06:10,089 Jane Shoemake: capital positions and payout less. And so I think now 127 00:06:10,089 --> 00:06:11,469 Jane Shoemake: what we are going to have is a little bit more of 128 00:06:11,470 --> 00:06:15,880 Jane Shoemake: a sustainable level of banking dividends in Australia. Having said that, 129 00:06:16,050 --> 00:06:19,850 Jane Shoemake: they've come back this year and they're only going to be about 15% 130 00:06:19,850 --> 00:06:23,370 Jane Shoemake: lower than their pre pandemic levels. So they weren't paying 131 00:06:23,370 --> 00:06:26,430 Jane Shoemake: out as much as they were, but it's not that far off. It's just, 132 00:06:26,430 --> 00:06:28,100 Jane Shoemake: as I said, around 15% lower. 133 00:06:28,460 --> 00:06:30,100 Sean Aylmer: Stay with me, Jane will be back in a minute. 134 00:06:35,200 --> 00:06:38,810 Sean Aylmer: My guest today is Jane Shoemake, Client Portfolio Manager of 135 00:06:38,810 --> 00:06:42,460 Sean Aylmer: Global Equity Income at Janus Henderson. Okay. So you were 136 00:06:42,510 --> 00:06:46,240 Sean Aylmer: talking about dose diversification a moment ago. If I am looking 137 00:06:46,240 --> 00:06:49,969 Sean Aylmer: for income, looking for a dividend regularly, and I've decided 138 00:06:49,970 --> 00:06:52,970 Sean Aylmer: that I'm too concentrated. If I stick with the Australian 139 00:06:52,970 --> 00:06:55,960 Sean Aylmer: market because of resources and banks, as you mentioned, what 140 00:06:55,960 --> 00:06:58,440 Sean Aylmer: countries should I be looking towards if I'm looking for 141 00:06:58,440 --> 00:06:59,240 Sean Aylmer: dividend yields? 142 00:06:59,660 --> 00:07:01,770 Jane Shoemake: It's interesting. Cause I think you have to look very 143 00:07:01,770 --> 00:07:05,790 Jane Shoemake: specifically at individual companies. And so in the US for example, 144 00:07:05,790 --> 00:07:09,560 Jane Shoemake: the market in aggregate doesn't pay out a huge dividend 145 00:07:09,640 --> 00:07:12,370 Jane Shoemake: at all and actually share buybacks in the US are 146 00:07:12,400 --> 00:07:15,830 Jane Shoemake: quite a lot more popular. Having said that within the US, there 147 00:07:16,040 --> 00:07:19,920 Jane Shoemake: are still stocks that yield three, four, five per cent. And so it 148 00:07:19,920 --> 00:07:23,360 Jane Shoemake: does come down to being very stock specific, for example, 149 00:07:23,360 --> 00:07:25,470 Jane Shoemake: as well in the US, you've got exposure to the 150 00:07:25,470 --> 00:07:28,840 Jane Shoemake: tech sector. Now people think that tech companies don't pay dividends, 151 00:07:28,840 --> 00:07:32,660 Jane Shoemake: but actually, some of these companies now are, 30, 40 years old. 152 00:07:32,660 --> 00:07:35,870 Jane Shoemake: They've matured quite a lot and they do pay out 153 00:07:35,870 --> 00:07:38,440 Jane Shoemake: some quite attractive dividends in the tech sector. Plus they 154 00:07:38,440 --> 00:07:41,910 Jane Shoemake: grow them very nicely. There's a lot of cash flow being 155 00:07:42,240 --> 00:07:44,610 Jane Shoemake: thrown off by the tech sector. So there's a whole 156 00:07:44,610 --> 00:07:46,850 Jane Shoemake: sector in the US that you just can't get access 157 00:07:46,850 --> 00:07:49,530 Jane Shoemake: to in Australia. And there's just not the exposure. There's 158 00:07:49,530 --> 00:07:52,670 Jane Shoemake: not the companies there. So some really interesting dynamics, but I do think 159 00:07:53,220 --> 00:07:54,910 Jane Shoemake: it's quite individual and quite stock specific. 160 00:07:55,590 --> 00:07:57,960 Sean Aylmer: Okay. And of course, there are tax implications too because the 161 00:07:57,960 --> 00:08:03,280 Sean Aylmer: Australian system benefits dividend payouts recede from local companies as 162 00:08:03,280 --> 00:08:04,240 Sean Aylmer: opposed to offshore. 163 00:08:04,670 --> 00:08:07,700 Jane Shoemake: It absolutely does. You've got franking credits in Australia, which 164 00:08:07,700 --> 00:08:11,870 Jane Shoemake: does make your domestic market more attractive from a tax perspective. 165 00:08:11,870 --> 00:08:15,500 Jane Shoemake: And so absolutely everyone understands that, if you're in Australia, 166 00:08:15,500 --> 00:08:18,530 Jane Shoemake: it's beneficial to invest in your domestic market, but all 167 00:08:18,530 --> 00:08:21,070 Jane Shoemake: we're saying is having some of the exposure, but just be aware 168 00:08:21,070 --> 00:08:24,290 Jane Shoemake: that it's in a very concentrated number of stocks, you're 169 00:08:24,590 --> 00:08:26,500 Jane Shoemake: very reliant on just a small number of companies for 170 00:08:26,500 --> 00:08:29,239 Jane Shoemake: some of that income. And that it's a really good idea to have a 171 00:08:29,240 --> 00:08:33,479 Jane Shoemake: proportion of your assets in a more diversified portfolio, albeit 172 00:08:33,480 --> 00:08:35,520 Jane Shoemake: you're not going to have that tax benefit that you 173 00:08:35,520 --> 00:08:37,099 Jane Shoemake: get from the franking credits. 174 00:08:37,580 --> 00:08:41,699 Sean Aylmer: Okay. If you're advising investors, obviously we're talking about dividends here, 175 00:08:42,000 --> 00:08:45,209 Sean Aylmer: but there's a real reason to focus well beyond on dividends into 176 00:08:45,210 --> 00:08:46,700 Sean Aylmer: growth stocks. That type of thing. 177 00:08:47,250 --> 00:08:49,320 Jane Shoemake: What we do actually on our desk is we, we 178 00:08:49,320 --> 00:08:51,760 Jane Shoemake: look for that yield. So we'll look for companies that 179 00:08:51,760 --> 00:08:55,470 Jane Shoemake: yield typically between two to 6% globally, but really importantly, 180 00:08:55,470 --> 00:08:56,950 Jane Shoemake: what we're also looking for is a bit of that 181 00:08:56,950 --> 00:08:59,540 Jane Shoemake: dividend growth. So what we want is to see a 182 00:08:59,540 --> 00:09:02,790 Jane Shoemake: sustainable dividend, but also companies that are investing that have 183 00:09:02,790 --> 00:09:05,510 Jane Shoemake: the ability to grow their dividend. Cause if you get 184 00:09:05,510 --> 00:09:07,829 Jane Shoemake: some growth, you usually get capital growth as well. So 185 00:09:07,830 --> 00:09:10,910 Jane Shoemake: the balance between some yield and some of that growth 186 00:09:10,910 --> 00:09:13,650 Jane Shoemake: element as well. And what you can see is actually 187 00:09:13,650 --> 00:09:17,309 Jane Shoemake: over the long dividends grow globally by around five to 188 00:09:17,309 --> 00:09:20,660 Jane Shoemake: 6% per annum. Now when you're in a high inflation 189 00:09:20,660 --> 00:09:25,329 Jane Shoemake: or an inflationary environment, that little bit of growth there in that dividend is a really, very 190 00:09:25,330 --> 00:09:27,250 Jane Shoemake: much a hedge against some of that inflation you're going 191 00:09:27,250 --> 00:09:28,981 Jane Shoemake: to experience. So we think it's just getting that balance right between the yield and the growth. 192 00:09:28,981 --> 00:09:36,359 Sean Aylmer: Okay. Is there a rule of thumb in terms of what the average dividend 193 00:09:36,660 --> 00:09:38,290 Sean Aylmer: is in Australia or globally? 194 00:09:38,750 --> 00:09:40,469 Jane Shoemake: No, not at all. I mean, you obviously can look 195 00:09:40,470 --> 00:09:43,160 Jane Shoemake: in aggregate. So, you know, the UK, Australian markets are 196 00:09:43,160 --> 00:09:45,880 Jane Shoemake: yielding three, 4%, and then you've got Japan and the 197 00:09:45,880 --> 00:09:49,320 Jane Shoemake: US yielding below sort of two generally, but no, there's 198 00:09:49,320 --> 00:09:52,700 Jane Shoemake: a whole range of different companies, yielding different amounts. 199 00:09:53,620 --> 00:09:53,621 Sean Aylmer: Yeah. 200 00:09:53,621 --> 00:09:56,190 Jane Shoemake: And what you have to do is just analyze them on their own understanding 201 00:09:56,190 --> 00:09:59,059 Jane Shoemake: of their businesses, what they're paying out. Also really, we don't 202 00:09:59,059 --> 00:10:02,570 Jane Shoemake: want people to pay dividends at any expense. What we 203 00:10:02,570 --> 00:10:05,570 Jane Shoemake: need is sustainable businesses and therefore they must be investing 204 00:10:05,570 --> 00:10:08,910 Jane Shoemake: as well. So it's really about the companies and the management, 205 00:10:08,910 --> 00:10:12,069 Jane Shoemake: making sure that they invest in their businesses, they're growing them, 206 00:10:12,290 --> 00:10:15,210 Jane Shoemake: but they're also generating enough cash flow to pay us a dividend. 207 00:10:15,670 --> 00:10:17,450 Sean Aylmer: Jane, thank you for talking to Fear and Greed. 208 00:10:17,750 --> 00:10:18,050 Jane Shoemake: Thanks so much. 209 00:10:18,710 --> 00:10:22,490 Sean Aylmer: That was Jane Shoemake, Client Portfolio Manager of Global Equity 210 00:10:22,490 --> 00:10:26,480 Sean Aylmer: Income at Janus Henderson. This is a Fear and Greed daily interview. 211 00:10:26,480 --> 00:10:28,720 Sean Aylmer: Join me every morning for the full Fear and Greed 212 00:10:28,720 --> 00:10:31,099 Sean Aylmer: podcast with all the business news you need to know. 213 00:10:31,340 --> 00:10:33,069 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.