The COVID crash of early 2020 brought out the worst in many of the ASX’s best dividend shares.
Companies like Flight Centre Travel Group Ltd (ASX: FLT), National Australia Bank Ltd. (ASX: NAB) and Premier Investments Ltd (ASX: PMV) shares are very well-known for their dividends but this year that track record is being called into question.
To be sure, each of these fallen dividend angels ‘has a few hairs on them’, to say the least. They each face a unique set of risks in the wake of COVID-19 and as a result, nothing is certain. However, with their strong financial history and brands, it may be worth taking a look at them now.
NAB
National Australia Bank is our country’s leading business bank and the owner of an online-only lender called UBank.
NAB recently cut its half-year dividend to 30 cents per share fully franked, amidst rising economic uncertainty, a bank repayment holiday for homeowners and millions of Aussies moving to JobKeeper or JobSeeker.
While NAB’s announcement was better than that of Westpac Banking Corp (ASX: WBC) and ANZ Banking Group (ASX: ANZ), which both ‘deferred’ their dividend, the economic outlook for NAB isn’t much better. I think it could pay to be patient and wait for the next batch of financial results to sink in.
Based on Goldman Sachs’ full-year dividend forecasts of $0.75 per share for 2020, NAB shares currently trade at an adjusted ‘best-guess’ dividend yield of 3.6%. If the bank actually pays the $0.75, plus franking credits, that would be appealing to investors in a low-interest-rate environment.
NAB and CBA would be my preferred ASX bank shares, but I don’t own either of them right now. As I’ve explained before, there are quite a few options to consider for income before diving into bank shares.
Premier Investments
PMV shares listed on the ASX in December 1987 as an investment structure which would go on to acquire or attain controlling stakes of ‘premier’ retail brands, especially those with a focus on importing and distributing.
PMV’s stable includes retail brands like Smiggle, Peter Alexander, Just Jeans and Jay Jays. It also owns just over 20% of appliance maker Breville Group Ltd (ASX: BRG).
Premier is the only one on this list to have — so far — maintained its dividend track record. On the 30th of July, PMV shares will go ‘ex-dividend’ with a 34-cents per share fully franked payment to shareholders, which is expected to be paid in late September.
The important consideration for shareholders now is what happens beyond the next few months. Analysts surveyed by Morningstar believe the company’s full-year dividend payments will fall meaningfully over the next year, despite expectations that the company could maintain its profit.
PMV is probably my favourite ASX retail company but I’m not in a rush to buy its shares right now. I’m keen to keep watching to see how Smiggle adjusts to online sales, which is a different form of selling to what children really want (i.e. flashy colours in retail stores).
Flight Centre Travel Group
The COVID-19 Pandemic was always going to wreak havoc on the income statements and balance sheet of travel providers like Flight Centre and Webjet Limited (ASX: WEB).
FLT is the name behind one of the world’s largest travel agencies. It also has a strong corporate travel management network spanning the globe. Its brands include Flight Centre, Corporate Traveller, 99 Bikes, Travel Money Oz and more.
As COVID-19 hit, overnight it seemed Australia’s most pervasive travel operator cut its dividend, wrote down profit, recalled its financial outlook, raised capital and, as recently as this month, drew on debt to help fund its UK operations.
On face value, Flight Centre is one of those businesses with the ability to ‘bounce’ off the economic bottom, just as it did during the Global Financial Crisis of 2008/2009 when its share price fell from nearly $28 per share to $3.90 — an 85% fall. So I’m eager to see how management respond.
Admittedly, the battle through COVID-19 and Australia’s first recession since 1991 will take considerable time, savvy management and cost-cutting to survive and thrive. In my opinion, it’s not likely to pay a dividend any time soon.
Buy, Hold or Sell
It’s impossible for anyone to know exactly how these companies — and their potential dividend payments — will fare in the next 12-24 months. I’m confident that all three businesses will still be operating three years from today.
However, I wouldn’t be surprised if each of them takes 3-5 years to get back to paying the amount in dividends they did prior to the COVID-19 impact — if they do at all.
Personally, in the absence of more severe volatility, I’d prefer to find smaller or medium-sized companies with more predictable revenue streams, strong scalability and free cash flow potential, and long-term upside. There a few in my portfolio and in the free report below.
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