The effects, impacts and dislocations of the COVID-19 pandemic have been felt very heavily in the investment markets, and the fluttering of the black swan’s wings has certainly disconcerted income-oriented investors.
The Australian addiction to dividends
As interest rates ground lower in the 2010s in the wake of the global financial crisis, typical income strategies based on bonds became harder to justify. Income-seeking investors were effectively forced up the risk curve, toward corporate bonds, high-yield bonds, cash-generating real asset investments, and the share market.
In particular, the income aspect of share dividends – turbo-charged by Australia’s dividend imputation system – became a major attraction, with effective yields in the 6%–8% range readily available. For this, investors had to accept several facts: one, that the dividends cannot be considered certain until they are paid; two, that dividends are paid at the company’s discretion, and can be cut at any time – even abandoned; and three, that they bore the capital risk of the share market.
Finding yield in new areas