Chart of the Week: Where Morningstar sees attractive dividend yields in 26/27
Charts from the Australian Dividend Outlook show the sectors where they are abundant.
Mentioned: Endeavour Group Ltd Ordinary Shares (EDV), Accent Group Ltd (AX1), Domino's Pizza Enterprises Ltd (DMP)
This week’s Chart of the Week comes from Morningstar Equity Research team’s Australian Dividend Outlook and Top Picks report. Morningstar’s analysts see ample opportunities in the market for income oriented investors, even though the market screens as expensive.
Key Takeaways:
- The ASX 200 is currently overvalued, translating into less attractive dividend yields than historically—3.1% as of late August 2025, below the 10-year average of 4.4%.
- Despite this, yield opportunities remain abundant. We expect dividends per share to rise over the next two years, with 64% of our coverage increasing DPS in FY26 and 78% in FY27.
- Seven of eleven sectors are expected to deliver higher dividend yields than the broader market’s forecast 4.0% average over FY26-27. Energy leads at 5.5%, followed by Utilities (5.3%), Real Estate (4.8%), and Financial Services (4.7%).
- Our dividend pick list features 23 companies diversified across sectors and market capitalisations, delivering an average yield of 5.6% for FY26-27. Nearly 40% of these companies offer yields averaging 6.0% or more over FY26-27.
Current dividend yields are relatively unattractive compared with other traditional income sources, suggesting equity market overvaluation. ASX dividend yields generally sit above those from fixed income, normal given equities bring increased risks. But this relationship has changed since mid-2023. Expectations for rate cuts in 2025 attracted stronger risk appetite into stocks, reducing distribution yields. With other income sources offering higher yields, equities price in higher capital appreciation—through earnings growth—to compensate.
The report includes the top dividend picks for investors, and our analysts seek moats, predictability and diversification for income investors.
More than half of the pick list constituents have economic moats. Moats are important to consider for income investing as competitive advantages can support a firm’s ability to maintain consistent cash flows for distributions. No-moat-rated stocks may still be suitable, though, as other factors, like financial health, valuation, and dividend consistency, come into play. No-moat companies may be suitable if there’s a reasonable level of cash flow stability and a dividend focus.
Over 90% of the pick list have Low or Medium Morningstar Uncertainty Ratings. The Uncertainty Rating indicates our analysts’ estimated range of potential outcomes for a company, reflecting underlying business risks. The lower the Uncertainty Rating, the less volatile we expect future cash flows to be—hence the greater our confidence in projected earnings and dividends.
The full report including the full pick list is available to Morningstar Investor subscribers and trialists.
You’re able to find previous editions of Chart of the Week here.
