Why ASX 200 dividend yields could be set to ‘materially alter’

'Until you can actually prove an outcome, we don't believe it is actually in the price and/or of diminished valued,’ mused Morgan Stanley this week.

The coronavirus impact at a glance

Even as Australia’s coronavirus (Covid-19) infection rates slow – the situation remains far from resolved. Indeed, many parts of the country’s economy remain shuttered: wide-reaching travel restrictions remain in place and all but the most essential services are allowed to stay open.

On a company-specific level, the impact has been immediate and in some cases disastrous.

Many ASX-listed companies in the most impacted industries have rushed to shore up their balance sheets, be it through raising new debt or equity; while others have slashed their forward earnings guidance; stood down staff, slashed salaries; and reduced or cut their dividends entirely.

In a piece of research released this week, Morgan Stanley noted that some 61 ASX 200 companies – representing a staggering 18% of the index’s market capitalisation – had already withdrawn their guidance.

Some of the key names to withdraw their guidance thus far include: Qantas, QBE, REA Group, Woolworths Group, Aristocrat Leisure and AMP.

Other companies, such as the biotech giant CSL, tech-focused pizza restaurant chain Dominos, and machine learning company Appen – have actually taken the opportunity to reaffirm their 2020 guidance. Overall though, such companies remain in the minority.

Maybe most importantly however, this situation has created a problem for earnings visibility, with Morgan Stanley arguing that, ‘Our top-down earnings models point to a double digit reduction in forward earnings.’

The ASX 200 dividend outlook

As a corollary of lower earnings, Morgan Stanely argues that it is likely that ‘dividend payouts will also be adjusted and in some cases adjusted much greater than the actual hit to earnings.’

It would, in the investment bank’s eyes, be difficult for companies to justify high payout ratios while raising fresh capital or/and accepting government stimulus.

Finally, although the ASX 200’s current yield sits at an impressive 4.7%; as Morgan Stanley points out:

‘A return to lower payout ratios on what will definitely be lower earnings would materially alter ASX 200 yield credentials and make searching for sustainable yield even more important in this dislocated environment.’

Markets always discount – or factor in – present and future events, after all. Though, whether they do so accurately, is another matter entirely.

How to trade indices: long and short

What do you make of the current situation: do you see bullish or bearish opportunities? Whatever your opinion, you can trade indices, currencies and equities – both LONG or SHORT – with IG’s world-class trading platform now.

For example, to buy (long) or sell (short) the ASX 200 index using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘ASX 200’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.