SMSF investors do not have to sacrifice income when diversifying into global equities as there are ample dividend prospects offshore.
Plato Investment Management managing director Don Hamson said many investors acknowledged they required diversification in their portfolios via offshore investment, but were not convinced of the income level.
“The income is lousy, around 2 per cent, so that’s the question – can you generate and how do you generate high levels of income in a global equities portfolio?” Hamson told the Pinnacle Investment Summit in Sydney today.
“If we look at the macro environment today, income is still hard to find and with interest rates at an all-time low, term deposits are not going anywhere.
“And in the latest asset allocations of SMSFs here in Australia, the biggest lion’s share is in Australian equities at 32 per cent and somewhat surprising is cash is still the next biggest at 24 per cent, but direct global share allocation is virtually nothing at 1 per cent.”
He said global shares could provide significant dividend opportunities for investors if they looked hard enough and also considered the frequency of dividend payouts.
“You can get diversification benefits and not have to actually give up the income opportunities by going into global shares,” he noted.
“Looking at the overseas developed markets universe – the same size of stocks in the S&P 300 stocks here in Australia – if we consider the dividend-paying opportunities, the world is truly your oyster as there are thousands of stocks that pay dividends and they pay them all throughout the year.
“In January, there’s only one stock in Australia compared to globally where [there are] about 400 stocks that pay out their dividends every January.
“In March, which is our biggest dividend-paying period in Australia, about 75 individual names in the S&P 500, but nearly 2000 pay out dividends just in developed markets overseas, so the opportunity is vast.”
He also pointed out there were quite a large number of high-yielding stocks globally compared to domestically.
“We found about 450 stocks overseas that pay out dividends between 4 per cent to 5 per cent annual yield and there was another 250 that paid an excess of 6 per cent annual yield with no franking,” he revealed.
“Salmar is a Norweigan salmon producer, a bit like Tassal, and pays a 6 per cent annual dividend and what’s more it pays it in one hit, so you only need to own it for a couple of months to get a 6 per cent income.
“So if you look for these hidden diamonds, they are actually there and they’re not all small or unknown-name companies, there are quite a number of household names that pay reasonable levels of dividends at about that 5 per cent mark.”
In March, the latest listed investment company (LIC) launched in the local market was the Plato Income Maximiser LIC, which distributes monthly fully franked dividends.
It was designed specifically with SMSFs and pension-phase investors in mind.
Plato is a boutique manager under Pinnacle Investment Management.
