By Eli Greenblat
Veteran fund manager Geoff Wilson has one message for corporate Australia this year: show investors the cash.
The Wilson Asset Management chairman and champion of the nation’s fully franked dividend regime will reward shareholders in his international fund with a more than tripling of its final dividend.
The move comes ahead of what is expected to be a disastrous earnings season for yield-hungry investors, with the prospect of more capital raisings further eroding confidence and the ability to pay out higher dividends to shareholders.
Mr Wilson expects most company boards to adopt a cautious approach to paying final dividends, with one eye on the continued economic blows caused by the coronavirus and a desire to bolster their own balance sheets.
Mr Wilson’s $500m WAM Global, one of his stable of listed investment funds that includes the flagship WAM Capital, on Tuesday moved to spread some cheer with investors and announce early its own intentions to sharply lift its final dividend payment after the fund easily beat its benchmarks over the past year.
WAM Global announced its intention to pay a fully franked final dividend of 4c a share, bringing the total 2020 fiscal year dividend to 7c a share.
This represents a 250 per cent improvement on the 2019 full year and a 100 per cent rise on last year’s final dividend. The international fund will dip into its profit reserves of 24c a share to support the fatter dividend.
“The WAM Global board believes with the profit reserve that we have got and with the uncertainty, now is the time, and particularly when yield matters,’’ Mr Wilson told The Australian.
“Competitors are cutting dividends, there is a lot of pain across the real economy, some of Australia’s largest companies like the banks are deferring dividends, so let’s come out early with our dividend and give our investor certainty,” Mr Wilson added.
“And when we have the ability to grow our dividend, let’s grow them. In this incredibly low-yield environment, yield does matter. The whole idea of announcing the dividend early from a board perspective is for us to remove a level of uncertainty as the (full-year) result won’t come out until August.’’
On Monday, $700m listed investor Djerriwarrh, which over 30 years has built its reputation on delivering to shareholders a sound stream of dividends, slashed its full-year dividend by 30 per cent and warned its future premium to the yield of the broader sharemarket could narrow. Other investment companies are expected to follow as the once rich flow of dividends from the banks and leading industrials begins to dry up.
Mr Wilson is well known for his love and defence of dividends. In 2019, he helped rally his client base of 80,000 retail investors to savage the ALP election policy that would have ripped up the franking credits regime on dividends and in doing so helped scuttle then-ALP leader Bill Shorten’s bid to become prime minister.
“In theory if we have the franking that is better off in shareholders’ hands,” Mr Wilson said.
“You know my view on franking credits, it encourages us to do this. We pay the taxes in Australia so it makes sense to pass the dividends through to shareholders. And to me that is the big difference to what Warren Buffett can do of not paying anything out.”
Mr Wilson warned that the 2020 reporting season would not be a happy one for investors searching for growing or even stable dividends.
“I think it is going to be difficult,” he said. “There has been a lot of equity raised and companies will be looking at their balance sheets. I think there will be more equity raised.
“A lot of operating companies will be asking, do we hold dividends or do we cut dividends in terms of how is the balance sheet. The focus will be on having strong balance sheets given the high level of uncertainty for the economy going forward.
“I think boards will be hesitant raising dividends unless there is good reason.’’