Key determinants of a company’s ability to maintain dividends include the percentage of fixed versus variable costs, the flexibility in operational costs and balance sheet leverage.
In this environment, we would also highlight that caution is required in taking a passive approach to equity income investing, as this can lead to relying too heavily on the traditional income-generating sectors such as oil producers.
Also, a rules-based approach to passive management often only alters positions once a dividend payment has been missed and foregoes the benefit of reacting to announcements on dividend cuts.
An active approach to income investing will potentially never be more valuable.
In this challenging environment, a multi-asset approach to income investing can incorporate all of these many considerations into portfolio positioning.
Eugene Philalithis is portfolio manager of the Fidelity Multi-Asset Income fund
