Dividends you can bank on
High dividends continue to make Australian shares a rewarding investment
SINCE the start of this calendar year the share market has been wild. The gyrations have been scary, largely instigated by the blunt policy making of US President Donald Trump through his Twitter account.
It’s a time when every investor is looking for a buffer to cushion the bumps.
For us, that cushion is dividends. We’re pretty conservative in our share investing with a foundation of blue chip high yield stocks.
As a result of the recent company reporting season, the dividend payouts of our top 50 companies are still impressive, particularly in this low interest rate environment where you’re earning virtually nothing from things like term deposits.
The power of dividends is often overlooked by investors – to their financial disadvantage.
Major Australian companies are paying dividend yields of up to 6.5 per cent fully franked which, when you consider the volatility of share prices, is a powerful addition to your returns.
While the Australian share market produced pretty decent returns for the past three years, the boost from dividends can make all the difference.
The list we’ve included are the top dividend payers among our 50 biggest share market listed companies.
Remember, a fully franked dividend means your payment comes with a tax credit equal to the company tax rate of 30 per cent. It means that the company paid its full level of company tax so shareholders receive a tax credit with their dividend … if they didn’t, it would be a case of double taxation.
A good dividend yield can often indicate a company has good cash flow, financial strength, a low share price or a combination of all three.
While most of us follow the fortunes of our share portfolio regularly via their share price movements, that dividend cheque twice a year often goes unnoticed … it shouldn’t.
With many top companies paying a dividend yield of 4-5 per cent, add the impact of franking credits and that yield can jump to an impressive grossed up 7-8.5 per cent.
During the profit reporting season, the focus of the tidal wave of results is usually on the earnings and the dividend policy at times only receives scant mention.
The theory is a top 50 company is usually blue chip, would have strong cash flow to be able to pay the dividend but for traditional growth stocks it usually means the market has marked them down for some reason and that’s why their dividend yield is so good.
The potential is that when market sentiment changes, selected growth stocks will move up with the cycle and you’ve locked in a decent dividend yield at these prices. So the theory goes … an added bonus.
It highlights the fact that while the dividend yield is good now, you have to be confident the company has the capacity to maintain dividends into the future.
One group which seems to be able to do that year in, year out, is the banks.
Once again our top dividend payers are dominated by the major banks, which is a consolation for their investors for an average 12 months of share price performance.
The share prices of the major banks continue to come under pressure as investors take a conservative approach given increasing competition from disrupters and fears the outcome of the Banking Royal Commission may tighten the regulatory reins.
Telstra retains its mantle as Australia’s best dividend payer but the big question is how long will that last. With its river of financial gold from NBN payments about to be turned off, investors are bracing for less attractive dividend returns in the future. But Telstra shareholders have had a great run.
Interesting additions to the
list of top dividend payers has been from some of our major miners. Yes the mining investment boom is now a distant memory, but that investment has turned into a production boom which generating huge amount of cash from exports.
And it’s not just BHP and Rio leading the pack.
Fortescue Metals had a cloud over its future just a couple of years ago and is now a dividend darling. It has been a remarkable turnaround.
While Iron Mountain has no franking credits, its 7.2 per cent dividend yield is impressive.
Other dividend staples like Treasury Wine Estates, QBE, Woolworths and Westfield are still up there with the best.
The list is just a guide to get you thinking about how important dividend returns can be. You need to get your own investment advice before looking at any investment in the share market.
As you can see, in isolation, a list like this is overly skewed toward financial companies because they traditionally generate strong cashflows while resource stocks are generally under represented because much of their cash is reinvested in the business.