Biggest share dividends come from these ASX companies

The biggest dividend payers on Australia’s stock exchange are not the companies you might think. LIST OF TOP EARNERS

Sharemarket investors are set to enjoy rising dividend payouts in the next few years, fuelled by the big banks and mining giants.

But there is a role reversal from traditional dividend trends among major stocks, as resources companies deliver the biggest payouts while banks struggle to make the top 10.

Fortescue Metals Group, AGL, Origin Energy, Rio Tinto and BHP are all paying dividend yields above 4 per cent. However, the Commonwealth Bank’s current yield is just 2.5 per cent – caused by a combination of its record high share price and 2020’s Covid-related dividend cuts.

Share analysts expect the banks to return to their pre-Covid dividend levels soon, buoyed by a stronger-than-expected economy and booming housing market.

A report last month by fund manager Janus Henderson found dividends this year would reach 85 per cent of 2019 levels.

Australian Shareholders Association director Lelde Smits said investors often preferred dividend-paying stocks, and banks and miners were expected to do well.

“The next couple of years are expected to see a strong dividend flow and this in turn should underpin share prices,” she said.

Motley Fool Australia chief investment officer Scott Phillips said he expected dividends to bounce back strongly as the economy normalised and “the banks come back from an emergency footing last year, flush with cash”.

“Look for good gains from banks, but also iron ore companies, discretionary retailers and under-appreciated but growing technology companies,” he said.

Montgomery Investment Management founder Roger Montgomery said companies emerging strongly from Covid would boost earnings, and increase dividends unless management used its cash to buy struggling competitors.

“Bank dividends appear to be returning to the long-term path of modest growth, and materials companies like BHP are generating extraordinary cash,” he said.

“Witness, for example, Fortescue’s recent $10 billion dividend, which was two times the entire value of the company at its lows.”

Fortescue tops the table of dividend payers among the 50 largest ASX companies, paying almost 11 per cent. However, companies such as AGL Energy and Origin Energy have high dividend yields because their share prices have dropped sharply.

Lelde Smits from the Australian Shareholders Association. Picture: Brenton Edwards

Catapult Wealth portfolio manager Timothy Haselum said dividend yields were a lagging indicator: “you should be watching earnings per share – don’t let the tail wag the dog”.

“Certain sectors, like resources, are already running high dividends, and they will have less scope for upside from here,” he said.

Mr Haselum said he expected good dividend growth from:

• ANZ and CBA as the rising home loan rates helped profitability and bad debt provisions dropped.

• Sydney Airport, which should recover from next year.

• Toll road company Transurban as it had “numbers coming in strong”.

• Wesfarmers amid strong business unit performance and upside from its 2019 Catch acquisition and lithium assets.

Forager Funds Management chief investment officer Steve Johnson said he expected dividends to return to pre-Covid levels “and then some modest growth from there as the economy continues to improve”.

He expects growing dividends from Downer EDI following a recent restructuring, and TPG Telecom to pay more “as it will be operating in a less competitive environment”.