Namesake seems worried by high dividend payers
Following on from Roger Montgomery’s debate with Peter Switzer regarding the “safety” of high dividend paying companies, the Financial Times reports the world’s listed companies have paid more than half their profits to shareholders in the form of dividends over the past year.
My brother’s namesake, Robert Buckland, global equity strategist for Citi Research, said, “the implication is companies have kept paying out dividends even as earnings have fallen away, and the risk is companies are paying out dividends that are not sufficiently covered by their profits.”
This shift highlights an emerging debate, where the dividend payout ratio is well above the long run median after several years of Central bank measures that have compressed bond yields. And why is the payout ratio (plus buy-back ratio) so high? Is it because many listed companies are struggling to sustainably grow their earnings in the relatively demographically challenged mature developed economies in which they operate?
Any dividend cuts are typically treated as a signal of deeper problems and are initially resisted by Boards. I expect dividends to exceed profitability for several energy and mining companies. However, when companies’ earnings struggle popular income focused investment funds will be found out.
High quality businesses with good prospects that are also reasonably priced are relatively difficult to find, and that is why the Montgomery products currently hold solid levels of cash. Markets are tardy, fashions change, and one-day opportunities will become abundant. “Patience, young grasshopper”.
To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Ben Wortley
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Thanks for the reminder David. I am a young investor. One of my first memories in investing was hearing Roger in an interview about 4 years ago. He said that quality stocks were selling for about intrinsic value. Not much has changed. I have been able to pick up a few bargains since then but not many. It becomes frustrating. I can just imagine you patting me on the shoulder, “Patience, young grasshopper”.