Plato Investments managing director Don Hamson has urged the big four banks to keep paying dividends to investors, warning that older investors could be "hung out to dry" if the banks cut yields.
With the Australian Prudential Regulation Authority teling banks last week to ‘seriously consider’ suspending decisions on dividend payments until the full economic toll of the coronavirus outbreak is understood, Dr Hamson said the lenders could use underwritten dividend re-investment plans to offer certain shareholders discounted shares instead of cash payouts.
"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," Dr Hamson said.
"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."
Fund managers say retirees will suffer if the big four cut dividends.Credit:Ryan Stuart
Retirees with low superannuation balances and no income often rely on dividends to get by and with these payments drying up as companies try to protect capital reserves amid global economic uncertainty. Bank of Queensland became the first bank to defer its dividend at its half-year results last week and several analysts have predicted ANZ, NAB and Westpac will soon follow suit.
Dr Hamson's comments came as home equity consulting firm Household Capital on Tuesday reported a 40 per cent spike in calls last month from "panicked" retirees inquiring about reverse mortgages.
Chief executive of Household Capital Josh Funder said retirees have turned to home equity as the group are faced by sluggish rental yields, crashing superannuation balances as a result of extreme market volatility and insignificant term deposit returns caused by record low interest rates.
Mr Funder said that asset rich but income poor boomers have been left in "financial limbo" with many not qualifying for government assistance.
"Retirees are doing it tough," Mr Funder said. "And the national response has been inadequate to support retirees."
"The government response to JobSeekers and JobKeepers has been very good, we need to applaud the government for that response. But that response has missed retirees, they have not increased the pension or provided any form of enduring stimulus to help retirees get through to manage their health and their funding."
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