Big four banks urged to pay up dividends to investors
An Australian investment manager has urged the big four banks to continue paying dividends, propping up APRA's suggestion to use underwritten dividend reinvestment plans (DRPs) to meet the needs of the nation's retirees.
Plato Investment Management said underwritten DRPs would help address concerns on the ability of the big four to maintain capacity while still paying investors dividends.
"We know many of Australia's traditional income stocks have dividend re-investment plans," says Plato managing director Don Hamson.
"These companies can choose to underwrite those plans, which effectively means that new shares will be issued matching the dollar value of all the dividends that they pay.
"For all those investors electing cash rather than the DRP, the company will still issue new shares which a broker will sell on market during the DRP pricing period. This allows the company to completely preserve its capital as well as paying dividends to those who rely on the income to make ends meet."
Hamson urged APRA to encourage the big four banks to use DRP's, arguing this option would ensure Australia's retirees and investors are not "hung out to dry".
"Destroying the major income stream of thousands of Australians, many of whom are retirees, will put further strain on the economy, which we believe will fall into a deep recession in the June quarter of 2020," he says.
The investment manager said the big four banks paid 30% of gross dividends of the entire S&P/ASX 200 index last year.
We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.