Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Dividends rebound but tread carefully around record yields: Charts of the week

Lewis Jackson  |  20 Sep 2021Text size  Decrease  Increase  |  
Email to Friend

2020 brought a year of dividend cuts and suspensions. Today, income is flowing again. The big miners snatched headlines but pay-outs are increasing more widely.

When shopping for income stocks after reporting season, it pays to be careful. Attractive dividend yields can be the product of falling share prices as much as bumper dividends.

To help navigate this space, today’s Charts of the Week looks at dividend performance this reporting season, how it compares to pre-pandemic days and Morningstar’s dividend forecasts for 2022 and 2023.

A broad advance in dividends

By one measure, dividends in 2021 are recovering to the levels immediately before the pandemic.

ASX companies under Morningstar coverage returned an average dividend of 60 cents in 2021, versus 65 cents in 2019 and 56 cents in 2018. Morningstar analysts cover about 80% of the S&P/ASX 200 index (about 95% of the index by market capitalisation).

The number of companies reporting dividends in 2021 (153) is still down 6% from 2019 (164) so the recovery is being driven by bigger pay-outs among those doing so. This has helped offset the smaller number of companies paying dividends.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Of the top 10 biggest dividend payers this year, seven paid out more than they did in 2019.
Wesfarmers (ASX: WES) paid out $3.78 in 2021 versus $2.78 in 2019. Mineral Resources (ASX: MIN) increased their dividend payment more than six times to $2.55. Surging iron ore prices helped the big three miners to bigger dividends. Fortescue’s (ASX: FMG) 2021 dividends of $3.58 more than doubled its 2019 distribution of $1.14.

Look beyond dividend yield

The recovery has helped dividend yields higher, but, in several cases, record high dividend yields have been helped by falling share prices as much as bumper dividends.

The top ten stocks by twelve-month dividend yield averaged a yield of 7.76%. Fortescue Metals came in first with a whopping 11.76%.

But high dividend yields can be the result of rising dividends or falling share price. Six of the top companies by twelve-month dividend yield saw share prices slump between June and August.

AGL Energy (ASX: AGL) had the second highest twelve-month dividend yield at 10.1%, but that was in part because the share price declined a full 20% between June and August.

Between June and August, the 12-month dividend yield for Platinum Asset Management (ASX: PTM) rose 24% to 5.78%. Over the same period, the share price slumped 15%.

Historic dividend yield can be misleading and shouldn’t be the only basis for picking income stocks, says Morningstar equity analyst Angus Hewitt

“In the last 18 months it hasn't been a helpful data point and more generally it's not. It doesn't tell you anything about the sustainability of dividends, or what is likely to happen next.”

FY 2022 dividend forecasts 

Morningstar equity analysts forecast double digit dividend yields for five stocks this financial year. These figures are based on the analyst’s forecasts for future dividends.

The familiar trio of BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue top the list with yields north of 15%. Mining holding companies Alumina (ASX: AWC) and Deterra Royalties (ASX: DRR) round out the five.

Is there a trend you'd like to see visualised? Get in touch.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend