Australian Stocks' Worst-Ever Start Has Investors Eyeing Payoutsby
Eight of nation's 10 biggest firms forecast to lift dividends
Australia dividend yield more than double that of the S&P 500
Australia’s stock market needs its dividends more than ever.
The worst start to a year on record for the S&P/ASX 200 Index left the gauge on the cusp of a bear market as commodity producers and banks sank amid a global selloff. The selloff was so steep -- 7 percent in seven days -- that even as analysts pared payout forecasts for companies including BHP Billiton Ltd., the index’s forward dividend yield got higher. With equities offering 2.4 percentage points of extra yield compared with government bonds, almost seven times the spread in the U.S., Shaw and Partners Ltd. and Rivkin Securities say the difference is too compelling to ignore.
“There’s going to be a continued thirst for yield when you see this gap so wide,” said Karl Goody, who helps oversee about A$10 billion ($7 billion) as a private wealth manager at Shaw and Partners in Sydney. “We’re advising people to add to positions and take advantage of this. It’s getting to the point where investors say that although they see additional risk in equities, it’s too much of a gap to pass up on.”
Australia’s investors are searching for positives after the share selloff erased $120 billion in value, taking the benchmark gauge back to levels unseen in more than two years. The nation’s company payouts are the highest among the world’s major stock markets, and eight out of the 10 biggest companies are seen boosting dividends this year even as China’s economic slowdown curbs the global growth outlook.
“Among the banks and insurers who have very steady payout ratios, even in the global financial crisis they didn’t really cut their dividends aggressively," Scott Schuberg, chief executive officer at Rivkin Securities, a brokerage in Sydney, said by phone.
Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. are all forecast to increase payouts this financial year, while National Australia Bank Ltd. will maintain its dividend at the current level, Bloomberg projections show. The S&P/ASX Banks Index lost 8.5 percent this year through Tuesday, dragging valuations below the average over the past 10 years.
Australian companies have long paid out about double the U.S. average to investors, and retirees living off their chunk of the nation’s $1.4 trillion pension pool favor stocks that provide them with an income stream. The dividend yield on the S&P/ASX 200 index was 5.5 percent on Wednesday, compared with 2.5 percent on the Standard & Poor’s 500 Index. Australian 10-year sovereign bonds offered 2.76 percent.
The S&P/ASX 200 closed at the lowest level since July 2013 on Thursday, falling 1.6 percent. The estimated 12-month dividend per share for companies on the gauge is about 10 percent higher than it was back then, even after slipping 3.3 percent from a Sept. 7 peak, data compiled by Bloomberg show.
“Stocks that have been a little bit too expensive are now coming back into the buy zone,” Rivkin’s Schuberg said. “The yields are fantastic when you look at what else is on offer."