Leaving The Yield Desert - Money and Investing with Andrew Baxter

Leaving the yield desert: As the big 4 banks in Australia are reporting their half-yearly earnings, Australia’s dividend investors are trekking into a yield desert. These companies struggle to maintain cash flow and payout their shareholders.

NAB – the example

Taking a look at one of Australia’s most historically ‘safer’ investments. The National Australia Bank (NAB), who just reported their half yearly earnings only to reveal some scary scars underneath their surface. They are one of the main drivers of the Aussie economy. As well as a stock that many Mum and Dad investors rely on for consistent dividend income given 48% of its shareholders are retail investors. NAB’s profit was down 51% from its last report which also showed increasingly higher debt provisions.

The scary part – their 80cent dividend has now been cut to just 33cents. That’s a cut of nearly 60%. Quite frankly, these are diabolical numbers and anyone who relies on NAB as a source of income. As host Andrew Baxter mentions, NAB may not only be the bank nor stock in this situation.

The yield desert – what’s to come

Using NAB as an example of what’s to come the whole notion of investing for dividends is becoming a yield desert. As companies take earnings hits, their provisioning of bad debt increases, and the global of the COVID-19 pandemic continues to wreak havoc on our economy. The dividend income is likely to cease to exist in the near future. On the back of a weakening property market and interest rate cuts. The Aussie companies and banks especially retaining their cash flow rather than paying out as dividends to investors. Quite simply, they need this money to survive and cannot simply afford to give this away.

As Australia and New Zealand Banking Group (ANZ) and Westpac Bank are due to report their half yearly earnings this week and next.  Host Andrew Baxter says we should expect to see “cookie cutter” which means less profit, more debt. Realistically to survive probably the driest yield desert of all time and need some survival tricks up your sleeve.

The yield oasis – where you could be playing

Amidst the Coronavirus pandemic and the economic damage thus far that the need for cash flow has never been greater. Where Andrew Baxter’s team plays in the financial options market – instill a time-test strategy known as Cash Flow on Demand.

As the name clearly suggests, his team buy stock and also sell Call options to give them up-front and immediate income. As an example, co-host Mitch Olarenshaw traded Westpac with his clients last week and collected 2.6% income over just 7 days, paid up front. Quite simply, for anyone who is looking for more income, the options market is your corridor of opportunity to the yield oasis (see how Andrew Baxter’s team can help you do this). Leaving the yield desert will be a cinch with some support.

How to evolve your investment strategy

As probably a lot of mum and dad investors are beginning to find out. The whole notion of buying blue chip stocks for the long-term and waiting for a dividend every 6 months simply doesn’t work anymore throughout these conditions.

This is ever make so apparent in NAB’s case to discuss earlier. Given this, just like music has evolved from Cassette tapes to now streaming services like Spotify for example, so too have financial markets.

So, the question arises, how do you adapt to the ever changing financial markets? Host Andrew Baxter recommends having a diversified set of strategies that you can use to generate income to up-front basis. Just like you have different outfits for different climates, you need varying investment strategies to suit the situation you’re in. The principal of regular cash flow remains concrete, however the mode it generated needs to shift from the conventional dividend to something more sophisticated like the options market.