Patience and diversification
Look to the long-term and diversify – this is the investment mantra we all learn at some point. So, if the current pandemic is the latest reminder of this, then we find this lesson is particularly needed when we look at global dividends – because the latest predictions don’t paint a pretty picture.
Dividends have always played a major role in stock market returns, but even more so in the past decade of low interest rates, which has put dividends front-and-centre in many income-seeking portfolios.
It’s with horror, then, that we read a prediction about the extent to which dividends could now fall.
According to Janus Henderson Investors, a best-case scenario is that pay-outs could fall by at least 15% as the pandemic takes its toll on company profits during the rest of this year. The worst-case scenario is that Covid-19 could cause a whopping 35% drop in dividend pay-outs to shareholders.
But the scenario at least reminds us of the lesson in diversification when we consider that some sectors will be worse hit than others.
In general, banks and discretionary consumer sectors will be hit the most. Technology, healthcare, food and most basic consumer sectors should be safer, according to the fund manager.
Volatility is not set to end any time soon, so remember, at times like these its patience and diversification that should, in the end, pay dividends.