Investors are still licking their wounds from the dramatic big bank dividend cuts, but there’s another sector that’s at dividend risk.

The decision to slice or skip these precious payouts is a big reason why banks like the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and Westpac Banking Corp (ASX: WBC) share price are still well below their pre-COVID-19 levels.

While the worst of the pandemic appears to be behind us, it will be awhile before the big banks can fully restore their dividends.

Income investors beware

There’s another group of dividend disappointers that are likely to reveal themselves during the August profit reporting season – and that’s property trusts.

Property stocks are a favourite among income-seeking investors and Morgan Stanley warns that the payout ratios in this sector may need to be cut.

Falling rents will not only pressure earnings, but are likely to force some to write down the value of these assets.

Properties under pressure

“On a 6- to 18-month view, asset values in Retail property, and Office to a lesser extent, will be subject to downward pressure as rent structures get reviewed, and office vacancies increase,” said Morgan Stanley.

“This means the gearing of these companies is likely to escalate, holding all else constant.”

This means property stocks may need to hold on to more cash to shore up their balance sheets and give themselves more flexibility.

Stocks most at risk

That will come at the expense of dividends with the broker estimating that a 15% drop in asset values could prompt most in the sector to lower their payout ratios to 50%.

It’s those most exposed to retail properties that are the most likely to cut their distributions. These include Scentre Group (ASX: SCG), Vicinity Centres (ASX: VCX) and Stockland Corporation Ltd (ASX: SGP), according to Morgan Stanley.

A 15% drop in property value will drive Vicinity’s gearing up to around 32% from 27%, while Stockland’s gearing is already near the top of management’s target 20% to 30% range.

Falling yields

“Lowering payout ratios to 50% would mean SCG, VCX and SGP’s FY21e yields decline to 3.9%,3.3%, and 4.2% respectively,” said the broker.

“[This is] well below the 5-6% the market has become accustomed to. At headline level, this is not a positive.”

However, Morgan Stanley thinks the market will forgive a dividend cut if it’s used as a temporary (maybe up to two years) measure to strengthen balance sheets.

This is especially so if it means the companies do not need to undertake a capital raising.

Not good enough

In my view, this makes the sector rather unappealing. Not only are the yields low even in this low interest rate environment, but there’s the added uncertainty from looming structural changes for both malls and offices.

I think there are better value stocks to be targeting in this market. If you are looking for other options, the experts at the Motley Fool have picked their best ASX stocks for the post-coronavirus world.

Find out what these are for free by clicking the link below.

More reading

• What a record rebound in oil demand in 2021 means for ASX energy stocks
• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• Is the ANZ share price a buy today?
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?

Motley Fool contributor BrenLau owns shares of Australia & New Zealand Banking Group Limited and Westpac Banking. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 50 index is home to 50 of the largest shares on the Australian share market. These are predominantly household names and companies that are true blue chip shares.

While not all shares on the index are necessarily in the buy zone, I think there are a few that could be.

Here’s why I would buy these three outstanding ASX 50 shares:

Aristocrat Leisure Limited (ASX: ALL)

The first ASX 50 share to consider buying is Aristocrat Leisure. I’m a big fan of the gaming technology company due to the quality of both it poker machine and digital businesses. I believe both businesses have the potential to grow at an above-average rate over the long term thanks to their quality portfolios, high levels of investment in product design, and strong market positions. Combined, I expect solid earnings growth from Aristocrat Leisure for years to come once the pandemic passes. This could make it a top long term option.

Rio Tinto Limited (ASX: RIO)

Another ASX 50 share I would buy is Rio Tinto. I think the mining giant could be a great option for investors that are wanting to diversify their portfolio with a little exposure to the resources sector. Especially given the recent increase in the iron ore price. This looks to have positioned Rio Tinto perfectly to deliver bumper free cash flows from its world class operations in FY 2020 and FY 2021. And given the strength of its balance sheet, this is likely to lead to the miner rewarding shareholders with handsome dividends.

Woolworths Limited (ASX: WOW)

A final ASX 50 share which I think is worth considering is Woolworths. I’m a big fan of Woolworths due to its quality brands (Woolworths supermarkets, Dan Murphy’s, BWS), their defensive qualities, and its strong management team. I believe they have put the company in a position to generate robust earnings growth for the foreseeable future. And with Woolworths traditionally paying out a good portion of its profits as dividends, this bodes well for investors in search of income in this low interest rate environment.

More reading

• 3 high yield ASX dividend shares for income investors
• UBS picks the best ASX retail stocks for the post COVID-19 world
• Investing $1,000 into these ASX 200 shares could be a smart move
• I think Aristocrat shares are outstanding value
• Why the ASX 200 tumbled lower on Monday and 2 shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It’s mid-June and in Australia, that means cold mornings, strawberry moons and tax time preparations. Tax time can be a frantic time of year for a lot of Australians. And come 30 June 2020, the financial year (FY20) will be over and a new one about to start (FY21). We all need to be ready for that to happen – those deductions, subscriptions and donations to charity aren’t going to organise themselves.

I’m sure many of us will be making our way to a Bunnings or Officeworks over the next fortnight – as shareholders of Wesfarmers Ltd (ASX: WES) are no doubt eagerly awaiting. 

But there’s another bit of financial housekeeping that we could all look at to help us during tax time, and that’s the option to top up your super.

I know, I know. No one likes super. I mean, most of us like that it’s there, but like children in days of yore, it’s often enjoyed ‘out of sight, out of mind’.

But that doesn’t stop the fact that our super needs a little maintenance from time-to-time. And we happen to be at that special time of year!

A super job before 30 June 

Not only is a superannuation fund a savings and investment fund for our retirement, but it’s also something of a legal tax haven. See, most super contributions are taxed at a flat 15% rate, as opposed to most other income which can be taxed all the way up to 47 cents to the dollar. And so if you want to top up your super in the form of adding in extra cash above your employer’s minimum 9.5% (up to $25,000 a year in most cases), it will remain taxed at 15 cents in the dollar. This has the potential to save you a substantial amount in income tax if you do it properly.

In order to claim this tax perk this financial year, you will have to top up your super before 30 June. Otherwise, it will count toward’s FY21’s cap rather than FY20’s.

So, if you want to turbocharge your super fund’s compounding returns (and the chances of living your best retirement), think about making some concessional contributions before this date. Of course, it’s always a good idea to speak with your own tax agent or financial advisor to be sure this is the right option for you.

Too many people aren’t taking full advantage of what topping up their super can do for them and I think it’s important to spread the word on how the FY20 tax time can help!

More reading

• 3 high quality dividend shares to buy instead of the big four banks
• Why I would buy Wesfarmers and these ASX dividend shares
• 2 of the best ASX dividend shares for retirees to buy today
• Got $5,000 spare? Consider Wesfarmers shares and these 2 other ASX companies
• Why ASX, Domain, Tyro, & Wesfarmers shares are dropping lower

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you have room in your portfolio for a few growth shares, then I think the three listed below could be top options.

I believe all three are well-positioned to deliver above-average earnings growth over the next few years and could generate strong returns for investors. Here’s why I’m positive on them and would invest $3,000 across their shares:

Bubs Australia Ltd (ASX: BUB)

The first growth share to look at is Bubs. It is a goat’s milk-focused infant formula and baby food company. Whilst I’ve been a fan of Bubs for a while, it is only really now that I think it is investment grade. This is because for a long time its strong sales growth was coming with significant losses. This led to the company burning through cash at a rapid rate. However, Bubs recently reported positive operating cashflow of $2.3 million on record quarterly revenue of $19.7 million. I’m optimistic the company has now reached a scale which will make its operations more and more profitable over the coming years. As a result, I think it could be a good long term option for investors.

Pro Medicus Limited (ASX: PME)

Another growth share that I think has a lot of potential is Pro Medicus. This healthcare technology company provides radiology IT software and services to hospitals, imaging centres, and healthcare groups. The product in its portfolio that I’m most excited about is the popular Visage 7 Enterprise Imaging Platform. It delivers fast, multi-dimensional images which are streamed via an intelligent thin-client viewer. Demand for Visage 7 has been strong and the company recently announced a major new contract with one of the highest rated hospitals in the United States. In addition to this, it revealed that it has a number of sales opportunities in its pipeline that it is working on. I believe this bodes well for its future growth.

Xero Limited (ASX: XRO)

A final ASX growth share I think investors ought to consider buying is Xero. I think the provider of cloud-based business and accounting software is arguably one of best growth shares on offer on the ASX. This is due to the increasing demand for its platform from small businesses and the stickiness of its product. Combined, they are resulting in significant recurring revenues which I feel are only likely to grow larger in the coming years as more and more businesses move over to the cloud.

More reading

• 5 ASX shares that would’ve made you a fortune in 5 years
• Why I think Xero shares are a great long-term buy
• ASX 200 jumps almost 4%, Webjet share price soars
• 3 ASX shares to buy and hold for the next decade
• Coles shares and 2 other ASX 200 companies to buy in the current market

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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