TOL - 4th Jun, 2024
Target market leaders, avoid dividend traps - IML's formula for consistent income
The IML Equity Income Fund aims to pay a quarterly distribution at least 2% above the ASX 300 yield - find out how in this Fund in Focus.
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While Michael O'Neill, portfolio manager (along with Tuan Luu) for the Investors Mutual Equity Income Fund, believes that dividends in Australia are unlikely to be cut amid solid economic conditions and robust employment, he is incredibly selective when picking income stocks.
“It doesn't look like the economy is going to struggle or will have a bad debt cycle anytime soon because job vacancies are still quite high”, notes O’Neill, before adding “but we really try and be selective because there's plenty of dividend traps out there.
“There are companies that are paying unsustainably high dividends, not supported by the cash flows.
They might have refinancing for their debt coming up at higher interest rates. They might have cyclical or discretionary earnings through the reporting season”.
Amid the current inflationary environment, O’Neill is also focused on companies that have invested over time to maintain market-leading positions, to justify the pricing power they have the consumers.
He cites companies like Steadfast (ASX: SDF), Suncorp (ASX: SUN), (Aurizon ASX: AZJ) and Orica (ASX: ORI), adding that such companies are reliable dividend payers.
In the following Fund in Focus, O’Neill also explains why income investors are looking to equities, how IML uses basic options strategies to help support the yields the Fund delivers, and the criteria for consistent dividend stocks.
Please note this interview was filmed on 15 May 2024.
Time codes
0:00 – Intro
0:12 – Overview of the IML Equity Income Fund
1:12 – Australia’s dividend outlook
2:55 – Why income investors are looking to equities
3:49 – Criteria for consistent dividend stocks
4:41 – The Fund’s cash allocation
6:06 – How options can add income
7:36 – The banks and miners and their position in the portfolio
9:00 – Fund suitability
After reliable income and capital growth?
The Investors Mutual Equity Income Fund focuses on providing investors with a reliable, and relatively high, income stream, as well as capital growth, with lower volatility than the ASX 300. To learn more, visit their website or fund profile below.
Managed Fund
Investors Mutual Equity Income Fund
Australian Shares
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Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and Macquarie Group. She also holds a degree in psychology which drives a continued fascination with how human behaviour drives and is driven by investments and market activity.
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4 stocks mentioned
1 fund mentioned
2 contributors mentioned
Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...
Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...
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