As the Reserve Bank of Australia has lowered interest rates again and again over the past 2 years, the appeal of ASX dividend shares has only increased. Interest rates directly influence the kinds of yields you can expect from 'safe' investments like government bonds, term deposits and savings accounts. So as rates fall, these safe investments offer less and less returns, which in turn increases the appeal of riskier dividend-paying shares.
As this phenomenon amplified over 2018 and 2019, we saw the share prices of dividend-paying companies increase dramatically. But none have increased as much as those dividend-paying shares the market regarded as the 'safest'.
But everything has changed in this coronavirus crisis we are facing. Suddenly, 'dividend safety' has been exposed as the myth that it really is.
Safe ASX dividend shares?
Sydney Airport Holdings Pty Ltd (ASX: SYD) is perhaps the most obvious stock to mention here. Sydney Airport shares have been bid to the sky in recent years as investors assumed the monopolistic major airport for Sydney and NSW would always have a guaranteed and recession-proof income stream from which to pay dividends. Between 2015 and 2020, Sydney Airport shares rose from under $5 to $9, reaching an all-time high of $9.30 in December last year.
But that's all a distant memory now. Sydney Airport shares have fallen 4.59% to $5.82 today after the company confirmed yesterday it would be cancelling its interim dividend this year. It's unfortunate proof the coronavirus has made the impossible very possible.
Another dividend 'fallen angel' is Transurban Group (ASX: TCL). Transurban owns a vast network of toll roads across Sydney, Melbourne and Brisbane. Another supposed 'recession-proof' dividend payer, Transurban's share price has also been bid to the stratosphere in recent years, climbing from around $9 in 2015 to an all-time high of $16.44 in February.
But today, Transurban shares are going for $12.42 after falling as low as $9.10 last month. Transurban hasn't cancelled its dividend like Sydney Airport, but it has told the markets to expect a material cut, advising that it will pay out a dividend "in line with free cash". We'll have to wait and see what that free cash ends up looking like, but since the company has already seen a substantial drop in traffic volumes in March, the picture isn't looking too pretty right now.
Foolish takeaway
Although the coronavirus was a typical 'black swan' event that no one saw coming, the experiences of Sydney Airport and Transurban remind us that nothing is guaranteed in the world of shares. I still think both companies are top-notch and will continue to be dividend-paying giants in the years ahead. But in 2020? Not so much.
