Superannuation funds are going backward along with the Australian share market.
However the dividend flows starting from the end of this month following the earnings season should ease the pain a little.
Self-managed superannuation funds, which control about 17% of the Australian equity market, will get a record dividend haul of $11 billion this season, according to calculations by Credit Suisse.
But the fall in value of the shares providing those dividends will mean a capital loss of almost $20 billion.
In a note to clients, analysts Hasan Tevfik and Damien Boey say much of this capital lost in Aussie equities is due to a love affair with the highest yielding stocks.
“The highest yielders have been some of the lowest returners,” they write. “So it is no surprise many are calling for Selfies (as they call SMSF funds) to rethink their singular focus on dividends.”
This chart shows how dividends have, so far, held up but capital gains have slipped:
Previously Tevfik and Boey recommended that income-seeking investors buy those stocks with the best combination of dividend yield and growth.
However, the analyst are expecting gains in the market after what they call “Gummy Rallies” (an upswing after dip into a bear market) as opposed to bear markets, which keep falling.
“We find income focused investors like Selfies should concentrate more on yield and less on growth,” the analysts say.
They say a simple high dividend yield strategy has outperformed during each of the last three Gummy Rallies.
“We think we are in the midst of a Gummy Rally now,” they write.
The recommendation is to increase focus on yield and lower focus on dividend growth.
The Credit Suisse equity dividend stocks include JB Hi-Fi, Westpac, Macquarie Group Stockland and Spark Infrastructure. Here are the rest: