Don’t bank on payouts

Dividends are proving a hit-and-miss affair

SOME of Australia’s biggest companies are showering investors with hefty dividend increases as businesses bounce back from the pandemic.

But others are holding on to cash reserves as geopolitical worries take over from Covid as the chief cause of concern, and sharemarket specialists say investors shouldn’t expect a broadbased dividend surge.

The nation’s two biggest stocks, BHP and Commonwealth Bank, have delivered dividend rises of 60 per cent and 17 per cent, respectively, in the latest profit reporting season.

Commsec chief economist Craig James said BHP had a “tremendous six months and is in a good position to hand money back to shareholders”.

Other miners and banks were “in a good space” too, he said. Rio Tinto handed out a record amount, although fellow iron ore miner Fortescue Metals slashed its dividend by more than 40 per cent to 86c a share but is still paying a yield above 16 per cent.

Some dividend rises were simply a case of shareholder payments rebounding back towards pre-pandemic levels, while travel giants such as Qantas and Flight Centre haven’t paid dividends since 2019.

Mr James said that until recently, companies had been “wanting to hand out dividends to shareholders” but there had been a change in the past year.

“Now companies are saying now is the time to push money back into the business,” he said.

Mr James forecast a more thoughtful approach from Australian companies and “steady as she goes” strategy with dividends.

Shaw and Partners senior investment adviser Jed Richards said many companies – including BHP and CBA – had been more cautious, resulting in plenty of spare cash.

“A lot of these companies in the last couple of years have become more gun-shy about taking on big projects,” Mr Richards said.

“Their cashflow is excellent but they haven’t really been brave enough to make major acquisitions in the economic environment and Covid environment.”

Mr Richards said he expected “more of the same” for dividends in the short term.

Companies had reduced debt levels during the pandemic and would hand back extra cash to shareholders, he said. Betashares chief economist David Bassanese said the outlook for dividends was “pretty good”.

“Both miners and banks lifting their dividends,” he said. “If anything, there may be upgrades coming through.”