WORLD LEADERS IN DIVIDENDS
SLUGGISH share price growth by the nation’s biggest businesses is crunching the long-term investment returns of shareholders and super fund members.
Investors have been frustrated by a lost decade on the stockmarket in which Australian shares have failed to return to their record highs of 2007, and total returns are below the global average.
As companies this week started reporting annual profits their shareholders could only dream of the windfall gains and record highs of the US market, lifted by massive growth in technology giants such as Apple and Google.
Country by country data from index provider MSCI for 20 key sharemarkets puts Australia’s average annual return, including dividends, at 3.37 per cent for the past 10 years. US shares are at 7.24 per cent and the world average is 5.04 per cent.
Other countries doing better than Australia include India (8.09 per cent), Hong Kong (6.78 per cent) and New Zealand (4.93 per cent).
Share analysts say the numbers may look “frustrating and disappointing” but there are reasons for Australia’s underperformance.
Baker Young Stockbrokers analyst Toby Grimm said Australia’s below average returns had caused concern among investors.
“It’s easy to feel like we have been short-changed,” he said. “There are markets that, whichever way you cut it, have outperformed ours.”
Share prices reflect company profits, and Mr Grimm said US companies’ earnings were about 50 per cent above their pre-GFC peaks while Australia’s were about 30 per cent below their peak.
US growth has come from Apple, Alphabet (Google’s owner), Microsoft, Amazon and Facebook becoming five of the world’s six biggest companies by market value.
“We don’t have that tech sector. We don’t have any global leaders in the tech space, which has been the driving force behind the US market,” he said. “Our market is still dominated by the big banks and big miners, and they have had good times and bad times.”
CommSec chief economist Craig James said investors should note dividends when assessing Australian companies, which ranked second only to New Zealand in terms of dividend payouts.
Australian stocks are paying an average 4.24 per cent dividend yield, more than double the US’s 1.98 per cent, according to MSCI data.
“In Australia dividends are much more important,” he said. A key reason for Australia’s relative weakness in the past decade was that New Zealand ................. 4.29% Australia ........................ 4.24% Spain .............................. 3.91% Britain ............................ 3.87% Taiwan ........................... 3.74% Singapore .......................3.37% Sweden .......................... 3.33% France ............................ 3.22% Switzerland .................... 3.17% Brazil .............................. 3.14% Canada ............................ 2.9% South Africa .....................2.8% Germany ......................... 2.71% Hong Kong .................... 2.63% Netherlands .................. 2.44% Japan .............................2.03% US .................................. 1.98% China .............................. 1.73% Korea ............................... 1.51% India ............................... 1.34% (MSCI World ................... 2.4%) Source: MSCI country
indices for July 2017 its previous record high was built on inflated share prices caused by the mining boom, which had since disappeared.
CMC Markets chief market strategist Michael McCarthy also noted our market’s lack of technology companies. “The important thing for investors is there’s plenty of ways to get exposure to those international markets,” he said.
This included through exchange traded funds, direct share investment, managed funds and products such as CFDs, Mr McCarthy said. However, buying now — with US stocks at record highs — might not be the best time.