Dividend Investing in Australia    Bookmark and Share

Published Mon, 31 Dec 2012 12:00 CET by TopYields.nl

Historically, Australian stocks have paid higher dividends than most global stocks. According to 2011 Russell Investments/ASX Long-Term Investing Report, over the past 20 years, Australian equities have outperformed all other asset classes, including real estate, fixed-income instruments and cash. Dividends have accounted for an increasing share of this total return on equities. In fact, according to SSgA Research and FactSet, on a cumulative basis, dividends contributed more than a third of Australian equities' total returns since 1980. Over the past 10 years through December 2011, that proportion has increased to about 45% of Australia's total equity returns. With 10-year government bond yields sitting close to record lows and given the modest growth outlook for the next five years, Australian dividend stocks stand ready to continue their overperformance relative to other asset classes.

Investors should scout through the Australian equity market in pursuit of attractive income plays. In general, the Australian stock market as represented by the All Ordinaries has a trailing dividend yield of around 4.44%. The forward-looking dividend yield is closer to 6.0%. In comparison with the 10-year government bond, the broad stock market's average dividend yield is 110 basis points higher, suggesting that either stocks are cheap or the 10-year government bonds are overvalued.

Yielding more than government bonds, equity income investments based on dividends can also be a way to beat inflation. While fixed-income investments can hardly pay enough to beat inflation, dividend stocks with increasing payouts, assuming all other things stay the same, can secure positive real returns. In fact, according to Credit Suisse Global Investment Returns Yearbook 2011, the long-term growth of dividend stocks in Australia between 1900 and 2010 was 1.1 percentage points higher than the rate of inflation.

Investors should also recognize the fact that dividends paid by Australian companies are worth more than the actual amount of their cash dividend paid. This is so because of a specific tax situation. Given that Australian corporations have already paid taxes on their profits prior to distributions, tax credits known as franking credits are assigned to the dividends these companies pay to their shareholders. Franking credits are a form of dividend imputation aimed at reducing or eliminating the double taxation of dividends. Investors can use franking credits to offset taxes payable on their other income. For franked dividends, there is no withholding tax. For unfranked dividends, a 30% withholding rate would apply, unless there is a more favorable tax treaty arrangement.

Ways to Invest in Dividend-Yielding Equities in Australia

Income investors in the Australian equity market have plenty of options to invest in dividend-yielding securities. One way to benefit from high yields on equities is by investing in exchange-traded funds (ETFs). Two ETFs that offer exposure to Australian dividend-paying equities are Australia-listed Russell High Dividend Australian Shares ETF (ASX: YRDV) and the U.S.-listed WisdomTree Australia Dividend Fund (NYSE Arca: AUSE). The former ETF overweighs financials, and has an annual expense ratio of 0.46% and a distribution yield of 5.5%. The latter ETF has a broader exposure to consumer sectors and financials, and carries an expense ratio of 0.58% and a dividend yield of 4.7%. Below is a table that shows the largest holdings in each of these two dividend ETFs. Most of the holdings are high-yielding dividend stocks.

WisdomTree Australia Dividend Fund Dividend Table

However, a recent UBS study cited by Australian Financial Review concludes that “high-yield strategies have not outperformed in Australia over the past 20 years” because “high-yielding stocks have typically passed the mature phase of the company lifecycle and are in decline.” Therefore, investors should focus on total returns driven by capital appreciation and dividend growth.

More conservative investors seeking total returns based on consistent dividend growth and sustainable yields as well as capital appreciation should consider investing in a select group of Australian stocks branded as Dividend Aristocrats. Based on the S&P Pan-Asia Dividend Aristocrats, these stocks represent the constituents of the S&P Pan Asia Broad Market Index (BMI) with consistent dividend increases for at least seven years in a row. Investors can choose from 11 Australian Dividend Aristocrats listed on the Pan Asia exchange. Some of the Australian Dividend Aristocrats mentioned in the table below offer a combination of attractive dividend yield, sustainable payout ratios, and robust dividend growth.


Constituents of the S&P Pan Asia Broad Market Index

Investors should also evaluate the following stocks with attractive yields, growth-geared dividend payout ratios, and dividend growth capacity.

Attractive Yields, Growth-Geared Dividend Payout

A dividend-focused investment strategy, especially the dividend-growth oriented approach, is appropriate for the current low-growth environment coupled with declining yields on government bonds. In that sense, dividend investing in Australia can provide above-average total returns that can beat inflation and the long-term performance of alternative asset classes.



Stock symbol(s): AMP.AX,ANN.AX,ANZ.AX,ANZBY,AUSE,BEN.AX,BHP,BHP.AX,BLT.L,BMBLY,BXB.AX,BXRBF,CAB.AX,CBA.AX,CCL.AX,CCLAY,CCV.AX,CGAAY,...



Stock name                      ISIN Last trade   P/E EPS Div PS Ex Div Date Payout Ratio Div Yield  
COCA-COLA AMATIL
P/E ratio of COCA-COLA AMATIL on Google Finance
AU000000CCL2 17.58   0.0 0.0 1.07 Feb 27 2014 6.09
COCA-COLA AMATIL
P/E ratio of COCA-COLA AMATIL on Google Finance
AU000000CCL2 9.41   88.8 0.1 0.56 Feb 21 2014 533 5.95
TELSTRA
P/E ratio of TELSTRA on Google Finance
AU000000TLS2 5.13   15.3 0.3 0.28 Feb 24 2014 86 5.56
TELSTRA
P/E ratio of TELSTRA on Google Finance
AU000000TLS2 5.13   15.3 0.3 0.28 Feb 24 2014 86 5.56
BENDIGO AND ADELAIDE BANK
P/E ratio of BENDIGO AND ADELAIDE BANK on Google Finance
AU000000BEN6 11.25   14.3 0.8 0.62 Feb 21 2014 80 5.51
TELSTRA
P/E ratio of TELSTRA on Google Finance
AU000000TLS2 23.93   16.8 143.0 1.31 Feb 25 2014 1 5.47
NATIONAL AUSTRALIA BANK
P/E ratio of NATIONAL AUSTRALIA BANK on Google Finance
US6325254083 16.56   15.6 1.1 0.89 Nov 07 2013 84 5.35
WESTPAC BANKING
P/E ratio of WESTPAC BANKING on Google Finance
US9612143019 32.70   16.2 201.0 1.71 Nov 12 2013 1 5.23
TATTS GROUP
P/E ratio of TATTS GROUP on Google Finance
AU000000TTS5 3.00   17.5 0.2 0.16 Feb 26 2014 91 5.17
SUNCORP-METWAY
P/E ratio of SUNCORP-METWAY on Google Finance
AU000000SUN6 12.83   32.6 0.4 0.65 Feb 24 2014 166 5.07
WESTPAC BANKING
P/E ratio of WESTPAC BANKING on Google Finance
AU000000WBC1 34.94   16.1 2.2 1.74 Nov 08 2013 81 4.98
COMMONWEALTH BANK AUS
P/E ratio of COMMONWEALTH BANK AUS on Google Finance
AU000000CBA7 77.57   15.6 4.9 3.83 Feb 17 2014 78 4.94
COMMONWEALTH BANK OF AUSTRALIA
P/E ratio of COMMONWEALTH BANK OF AUSTRALIA on Google Finance
US2027126000 72.74   0.0 0.0 3.57 Feb 20 2014 4.91
ANZ BANKING
P/E ratio of ANZ BANKING on Google Finance
AU000000ANZ3 33.88   15.0 2.2 1.64 Nov 07 2013 73 4.84
AUSTRALIA & NEW ZEALAND BANKING GROUP
P/E ratio of AUSTRALIA & NEW ZEALAND BANKING GROUP on Google Finance
US0525283042 31.65   15.1 209.0 1.48 Nov 12 2013 1 4.68
AMP
P/E ratio of AMP on Google Finance
AU000000AMP6 5.18   22.5 0.2 0.23 Mar 03 2014 100 4.44
COCHLEAR
P/E ratio of COCHLEAR on Google Finance
AU000000COH5 57.46   42.9 1.3 2.54 Feb 28 2014 191 4.42
WESFARMERS
P/E ratio of WESFARMERS on Google Finance
AU000000WES1 42.98   20.4 2.1 1.89 Feb 24 2014 90 4.40
ORICA
P/E ratio of ORICA on Google Finance
AU000000ORI1 21.50   13.0 1.6 0.94 Nov 19 2013 57 4.37
BHP BILLITON
P/E ratio of BHP BILLITON on Google Finance
GB0000566504 1913.00   11.5 166.0 73.05 Mar 05 2014 44 3.82
SUPER RETAIL GROUP
P/E ratio of SUPER RETAIL GROUP on Google Finance
AU000000SUL0 10.57   20.3 0.5 0.40 Feb 25 2014 74 3.74
WOOLWORTHS
P/E ratio of WOOLWORTHS on Google Finance
AU000000WOW2 37.09   19.3 1.9 1.36 Mar 17 2014 72 3.67
SONIC HEALTHCARE
P/E ratio of SONIC HEALTHCARE on Google Finance
AU000000SHL7 17.61   19.3 0.9 0.64 Feb 28 2014 71 3.63
BHP BILLITON
P/E ratio of BHP BILLITON on Google Finance
AU000000BHP4 38.10   12.7 3.0 1.29 Mar 03 2014 43 3.39
BHP BILLITON LTD
P/E ratio of BHP BILLITON LTD on Google Finance
US0886061086 71.15   12.8 5.6 2.36 Mar 05 2014 42 3.32
BRAMBLES INDUSTRIES
P/E ratio of BRAMBLES INDUSTRIES on Google Finance
AU000000BXB1 9.34   22.4 0.4 0.27 Mar 07 2014 64 2.89
QBE INSURANCE
P/E ratio of QBE INSURANCE on Google Finance
AU000000QBE9 11.87   0.0 -0.3 0.32 Mar 06 2014 -125 2.70
COMPUTERSHARE
P/E ratio of COMPUTERSHARE on Google Finance
AU000000CPU5 12.15   31.3 0.4 0.28 Feb 18 2014 73 2.30
ANSELL
P/E ratio of ANSELL on Google Finance
AU000000ANN9 17.91   14.9 1.2 0.41 Feb 26 2014 34 2.28
CSL
P/E ratio of CSL on Google Finance
AU000000CSL8 67.68   25.1 2.7 1.16 Mar 05 2014 43 1.71
RAMSAY HEALTH CARE
P/E ratio of RAMSAY HEALTH CARE on Google Finance
AU000000RHC8 44.84   33.8 1.3 0.76 Mar 04 2014 56 1.68


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