Chart of the Week: Aussie dividend yields below 10-year average
Income opportunities remain beneath the surface.
This week’s insights come directly from our equity research team on “Australian Dividend Outlook and Top Picks 2026 Q3.”
Market yield low as large cap prices hold
The ASX 200’s dividend yield was 3.4% at the close of September 2026, below its 10-year average of 4.1%. That’s still low despite recent bond yield rises. Markets appear to be looking through risks, including geopolitical conflict and the potential for a severe shock.
Investors seem to be betting on decent corporate earnings growth. On a market-cap-weighted basis, we think our coverage is expensive. But equal-weighted, the 4.4% yield and 0.93 price/fair value estimate look like decent value.
The ASX 200’s dividend yield is below other income options, such as rental yields and term deposits. This implies investors expect stronger profit and dividend growth than in the past or accept lower yield for higher capital growth.
Credit spreads are well below 2022 highs despite geopolitical tension and rising bond yields, suggesting investors aren’t especially concerned about shocks to corporate earnings. Renewed inflation, persistently higher bond yields, and escalating conflicts are headwinds.
Dividend opportunities still exist
Payout behaviour is changing. In the August 2026 reporting season, 59% of our covered companies lifted their full year dividends per share, up from 46% a year earlier. We expect around 54% to lift dividends again in fiscal 2027, with many holding or lowering their payout ratios.
We see some downside to dividends, for example amongst miners, where we do not expect prevailing buoyant commodity prices to hold. High prices for the big miners mean the yields no longer look compelling. Looking ahead, we expect lower earnings to be a headwind for dividends.
REITs are paying out more than their free cash flow, which is a risk, and we forecast some cuts. Despite a meager index yield, we see plenty of companies paying well. Our dividend Pick List features 27 companies across 10 sectors. Before franking credits, the forecast yield averages 5.6% over fiscal 2027 and 2028, versus an unweighted forecast average of 4.7% for our coverage.
With franking credits, the grossed-up average for the Pick List is 7.0%. Franking credits reflect tax already paid by the company, so their value depends on each investor’s tax position. We expect dividend yields to hold or rise for 70% of our picks over the next two years.
We lean toward companies whose dividends are covered by earnings and cash flow, with sound balance sheets, a moat or Low Morningstar Uncertainty Rating, and a reasonable price. Of the 27, 21 carry low or medium uncertainty, 16 have a moat, and the average price/fair value estimate ratio is 0.83.
