Are Aussie Dividend Stocks in Jeopardy?


Income doesn’t always come to mind when investing in stocks. However, to retirees, earning an income from your investments is crucial.

Generating an income on cash enables many Aussie retirees to live a comfortable life after their professional career. That’s why they are sometimes more concerned with dividends than they are with capital appreciation.

What good does a 50% spike in your investment do if it only happens once? The retiree would rather earn 5–7% on their cash for the long-term, generating a supplementary income of $25,000–35,000 on $500,000 invested.

Dividend stock growth slow in Australia

Yet according to The Australian Financial Review, Aussie businesses aren’t cutting the mustard when it comes to dividend growth:

Australian companies are failing to keep pace with the rest of the world when it comes to lifting dividend payments, prompting a leading fund manager to warn local shareholders that they should invest offshore to tap into companies that are increasing their earnings and raising payouts at a faster pace.

Investing offshore is even more critical for retired shareholders, given that nearly 70 per cent of dividends in Australia are paid by companies in just two sectors — financials and materials — putting older savers at risk of a sharp fall in income if payouts in either of those industries fall.

Dividend Stocks Annual Growth

Source: AFR

Since 2009, Aussie companies have increased dividends by an average of 61%. That’s less than the global average of 68%.

However, it’s not all bad for Aussie income investors. There are still opportunities to find companies trading on sustainable yields of 7–9%. The market has simply punished the businesses for temporary headwinds.

Yet the ASX does seem to have a problem with dividend concentration. The Aussie market has the third highest dividend concentrations in the world. The top 20 stocks in Australia account for about 75% of total shareholder payouts.

Thus, if the material or financial sector were to collapse, Aussie dividends might get sucked right out of the market. But how likely is such a situation?

Commodity prices holding strong

Commodity prices can be volatile, but at the moment they seem to be rising collectively. The Australian financial sector isn’t in dire straits.

What would be far worse for income investors is if stock prices rose significantly in a short time. It would reduce the opportunities to earn high yields, forcing income investors to buy overvalued stocks.


Härje Ronngard,

Junior Analyst, Markets & Money

PS: There are always opportunities to be found in the market. At the same time, there are plenty of stocks you wouldn’t want to touch with a 10-foot pole.

Vern Gowdie, our award-winning financial adviser, agrees. He’s written a report focusing on five stocks he believes you definitely shouldn’t have in your portfolio. To find out what they are, and to secure your free copy of Vern’s report, click here.

Härje Ronngard

Härje Ronngard

Harje Ronngard is a Junior Analyst at Markets and Money.

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.  

Härje Ronngard

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