Where did the dividends go

Published in the Adelaide Advertiser, March 2018 by Anythony Keane

Share dividends paid by Australia’s biggest companies have stalled, frustrating investors, retirees and superannuation funds.

As the profit reporting season wound up this week, an analysis of dividend payouts from the nation’s 20 biggest stocks has found that eight are paying less than they were three years ago, while another four companies have been relatively flat.

Investment analysts say shareholders should brace for more dividend doldrums, and those seeking growth will need to look beyond the widely-held major companies.

CMC Markets chief market analyst Ric Spooner said it was “something of a coincidence” that many top 20 stocks were in industries where profit growth had been difficult.

“The big culprits are the banks, the supermarket giants and Telstra,” he said.

All are battling rising competition, while banks are also facing expensive regulatory changes and a royal commission thrown in to boot.

Woolworths’ latest dividend was 35 per cent lower than its corresponding payment in 2015, Telstra’s was 27 per cent lower.

No big four bank grew more than 2.2 per cent (Westpac) while ANZ’s dividend dropped 16 per cent.

Baker Young Stockbrokers managed portfolio analyst Toby Grimm said the sluggish Australian economy had not generated the growth and inflation that could drive big company profits higher.

He said smaller companies were taking market share from the big guns or inventing new markets.

“The overall pie hasn’t got any bigger, but those who steal a piece or put some sauce on it are growing,” he said.

Australia’s share market was transforming and investors no longer demanded high dividends like they did a few years ago, Mr Grimm said.

“Dividends are still very important … from a long-term perspective they can massively add to your returns.

Going forward I would expect companies looking more and more to invest money rather than pay it out as dividends.”

Wealth Within senior investment analyst Janine Cox said investors should realise that Australia was not in boom times.

“Our market is not like the American market, we haven’t even gone through our all-time high (set in 2007 before the GFC).

It’s never taken this long to get back to an all-time high,” she said.

“It’s important to have a spread of stocks from a number of sectors. We like the energy sector.”

Mr Spooner said dividend growth was coming from new economy companies, and many of the best were based in the US.

“Maybe look at funds to get you that exposure,” he said.

Locally, Mr Spooner expected a resurgence in mining shares, although these stocks are riskier and cyclical.

He said it was a good idea for investors to hold a mix of dividend and growth shares.

“What the mix is depends on your plan, stage of life and overall wealth, and how dependent you are on dividends.”

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