While the probability of a rate increase by the Reserve Bank of Australia in 2021 is incredibly low, income investors need not worry.
That's because the Managing Director of Plato Investment Management, Dr Don Hamson, revealed that the income-focused investment firm is entering 2021 with a relatively bullish outlook for yield from Australian equities.
Plato Investment Management, the company behind Plato Income Maximiser Ltd (ASX: PL8), is particularly positive on miners with exposure to iron ore.
Dr Hamson commented: "We been getting exceptional yield from Iron Ore miners for some time now and we think this continues into 2021, even if we do see some short-term volatility. COVID-19 economic stimulus across the globe is continuing to evolve from income support to infrastructure spending, led by China, and this is a strong tailwind for demand."
"There is some concern about the impact of trade wars, but the reality is Chinese steel mills have few options outside of Australia. Brazil being the other major Iron Ore exporter, but all the data indicates Brazil alone can't provide China with what they need. China is hitting the exports it can get from other countries, like beef, barley, wine and now it seems coal," he added.
Plato's picks for dividends in this space are BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).
What are the other dividend options for 2021?
It isn't just the iron ore miners that Plato Investment Management sees as dividend options next year. The investment company expects to find strong yields in select domestically focused retailers in 2021.
Dr Hamson explained: "You can't travel abroad, so if you think about the number of additional Australians who'll be spending the holiday season at home, buying groceries from supermarkets, buying gifts and taking advantage of post-Christmas sales, we think this is significant. It bodes well for continuing strength from consumer staples stocks and select consumer discretionary."
In light of this, Plato is expecting good yields from the likes of Coles Group Ltd (ASX: COL), JB Hi-Fi Limited (ASX: JBH), Super Retail Group Ltd (ASX: SUL), and Wesfarmers Ltd (ASX: WES).
And with APRA removing dividend payout limits on the banks, Dr Hamson is also expecting upside in bank dividends.
He commented: "We've been underweight banks for most of the year but have become much more optimistic on banks dividends in recent months. We don't expect bank dividends to go back to where they were two years ago, but we're confident they will increase in 2021 and begin moving back towards normal payout ratios of between 70-90%."
"Rising property prices and continued government support for small business are both key factors that strengthen the case for a recovery in the banks," he concluded.
The Plato Australian Shares income fund is targeting a 7% yield over the coming 12 months.
