The sharp dividend cut that accompanied the big cap raise from National Australia Bank Ltd. (ASX: NAB) highlights a key challenge for Aussie investors.
Dividends on the ASX are falling faster and harder than just about anywhere in the world. The downside risks to these regular payments aren't abating even as our COVID-19 curve continues to flatten.
So far, there have been 27 companies that have cut or deferred dividends and many more are set to follow, according to JP Morgan.
Biggest dividend losers
You might have thought the worst offender are financial stocks on the S&P/ASX 200 Index (Index:^AXJO) and you would almost be right. The sector has downgraded dividends by 26.3% while energy stocks have slashed theirs by 54.2% due to the double whammy of the crashing oil price and the coronavirus fallout.
"With the world's highest payout ratio, it's no surprise that Australia has seen the deepest negative YTD revisions to dividends (-19.5%)," said the broker.
"Revisions at a global level have been modest in comparison thus far, with the MSCI ACWI one-year forward projection down just 7.6%."
Why NAB's cut caught most off-guard
The irony is that ASX banks are much better placed now than during the GFC, but the expected dividend cuts will go much deeper this time.
Again, using NAB as the posterchild (or whipping boy) for the sector, the bank "only" lowered its interim dividend by 25% to 73 cents a share in 2009. This time, the bank slashed its half year payout by 64% to 30 cents a share!
In fact, you will need to go back all the way to 1993 to find a lower interim dividend payment from NAB.
Miners are new dividend heroes
This makes the search for "safe" high-yield dividend payers all that much more urgent.
JP Morgan have identified nine ASX stocks on its conviction dividend list. These are ASX shares with a yield of at least 5%, relatively low risk of cutting their dividends and have a "overweight" (meaning "buy") recommendation by the broker.
Mining giants BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) are two that are on its list. The relatively resilient iron ore price and their under-geared balance sheets that's flushed with cash makes them my top picks as well.
Safer dividend bets
Other stocks include property groups Vicinity Centres (ASX: VCX) and GPT Group (ASX: GPT), investment bank Macquarie Group Ltd (ASX: MQG), packaging company AMCOR PLC/IDR UNRESTR (ASX: AMC), telco Telstra Corporation Ltd (ASX: TLS), trading platform provider Iress Ltd (ASX: IRE) and energy retailer Origin Energy Ltd (ASX: ORG).
As an aside, NAB was also on JP Morgans list. But most were expecting a more modest reduction to its dividend.
As I said, "safe" is only but a relative term when it comes to shares.