Chart of the Week: Compelling yield opportunities on the ASX
Yields expand as investors reassess risk and rates.
This week’s insights come from our equity research team’s latest Australian Dividend Outlook and Top Picks 2026 Q1.
Higher-for-longer interest rates is now the market consensus. All else equal, this suggests shares could fall, and dividend yields rise from recent levels if investors price equities using higher risk-free rates, and profits aren’t materially weakened by inflation.
How this plays out will vary by industry and by the strength of a company’s competitive position. Pricing power is key. Central bank cash rates in both Australia and the US are expected to be higher than current levels in a year’s time.
Aussie equity yields have improved but are below trend in aggregate
The ASX 200’s dividend yield, calculated on a market-cap-weighted basis, was around 3.3% at the end of March 2026, approximately one standard deviation below its 10-year average of 4.2%.
Importantly, it is also below that of lower-risk fixed income alternatives such as term deposits (unusual), given that equities typically carry higher risk and normally command a yield premium. While dividend yields are still less attractive, this overlooks the growth element of dividends from company earnings growth.
Additionally, credit spreads are creeping up, signaling waning risk appetite. Should risk appetite and share prices further wane given geopolitical uncertainty, yields may rise, provided corporate earnings are resilient.
Dividends set to rise but payout discipline holds
We generally expect companies to take a measured approach to dividends, balancing shareholder distributions against balance sheet stability and the need for future investment. We expect nearly 60% of our coverage to increase full-year distributions per share in the fiscal 2026 reporting season, up from 46% in fiscal 2025.
This is consistent with a broader trend of earnings growth with around 55% expected to retain or reduce their payout ratios* relative to the prior year.
Real assets and financials lead on yield
Among the sectors we cover, real estate, energy, communication services, utilities, and financials offer more attractive prospective yields. Communication services and utilities also rank among the few sectors with better prospects for consistent distribution growth.
Technology firms, by contrast, sit at the lower end of the yield spectrum, reflecting their preference for reinvesting in growth over returning cash to shareholders. That trade-off generally makes sense, but makes income investment opportunities hard to come by.
The full report and 23 company Pick List is available to Morningstar Investor subscribers and trialists.
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*Per share distributions as a proportion of earnings for most companies. For companies that do not pay dividends based on EPS, we apply their respective preferred metrics, such as free cash flow or funds from operations per share, as the denominator instead of EPS.
