Bonanza year for shares

But experts tip 2020 won’t deliver same profits

DIVIDENDS from Australian shares will deliver investors more than triple the interest rate paid by bank deposits this year.

But the stockmarket’s overall outlook for 2020 is not as rosy, with share specialists warning investors not to expect a repeat of its stellar 20 per cent-plus performance of 2019.

The Reserve Bank of Australia is widely tipped to cut interest rates again in February, so dividends should remain in strong demand and are expected to form about half of the 8-10 per cent total returns forecast for Aussie shares this year.

Ausbil Investment Management executive chairman Paul Xiradis said he expected dividends to be maintained at high levels.

“I think earnings growth will improve over the coming 12 months and beyond – that means there’s more earnings for the companies to pay out in dividends,” he said.

Many major companies are paying dividends above 4 per cent and the big four banks are paying 5-7 per cent, although Westpac and NAB cut their payouts last year.

Mr Xiradis said the outlook for bank profits was “questionable”

but he did not expect them to cut dividends further.

He said mining giants BHP, Rio Tinto and Fortescue could surprise with even higher dividends this year above their current yields of 4.8, 4.6 and 4 per cent respectively.

AMP Capital chief economist Shane Oliver (pictured) said bank term deposit rates were about 1.3 per cent, while Aussie share dividends averaged 4.25 per cent, or 5.7 per cent once tax benefits from franking credits were added. “It’s hard to see dividends going down unless there’s a long drawn-out deterioration in the economy,” Dr Oliver said.

In contrast, term deposits were “probably going to drop below 1 per cent” as the Reserve Bank cut its official interest rate below the current 0.75 per cent, he said.

“We expect the RBA to cut the cash rate to 0.5 per cent in February and to 0.25 per cent in March.

“Australian shares are likely to do OK this year but with total returns constrained around 9 per cent given subpar economic and profit growth.”

Not everyone expects dividends to stay so strong in the coming year.

IG Markets analyst Kyle Rodda said he expected overall dividends to fall, weighed down by the financial sector and lower profits for miners.

“Dividends are going to shrink but on a relative basis they’re still going to be attractive,” he said.