There’s been a ‘changing of the guard’ among sustainable dividend earners

By AMP Capital

Dividend lovers: we’re witnessing a bit of a changing of the guard when it comes to the performance of ASX listed companies. 

Financials and in particular banks – where investors have traditionally looked for their sustainable dividend growth – are beginning to be threatened for the mantle of sustainable dividend earners by so-called cyclical stocks, according to Dermot Ryan, AMP Capital’s Australian Equities Income Fund Co-Portfolio Manager. 

Within the cyclical category, resources stocks are beginning to show signs of dividend growth, while financials’ dividend growth is beginning to look static, Ryan points out. 

“There has been a changing of the guard,” Ryan says during this recent interview with AMP Capital TV following the recent earnings season. 

Ryan highlights this has been the best reporting seasons since 2010 when measured by the ratio of positive earnings revisions to negative earnings revisions. 

The local share market also saw strong dividend growth of 3.5 per cent over the prior results in 2017. 

However, what’s a little different is that distribution growth is coming from a different part of the market, Ryan adds. 

“Previously, financials have been leading dividend growth. Financials are now holding their dividends and we’re seeing a number of cyclical sectors, namely energy and resources, increasing their dividends,” he says.

The following chart compares dividend yield growth of financials and resources segments on the ASX and shows the dividend yield of the resources basket creeping up, reflecting dividend growth coming through in this segment.

This trend is stronger than perhaps the above chart suggests, considering bank shares have risen steadily as their dividends have grown in recent years, Ryan points out. 

Shares in resources companies have been rising in recent months as investors begin to focus on names within this segment but the dividend growth within this segment is still apparent, Ryan continues

Looking at share price and dividend growth of resources companies side by side (chart below) it’s clear dividend growth in this segment is going up in unison with valuations. 

Overall, the most recent earnings season was a bit of a pivotal time for investors, Ryan reckons.  

Coming to the end of a multi-year bull market, valuations are at multi year highs and we now are now about to start seeing interest rates tighten overseas. 

Higher interest rates coming down the pipe could mean higher costs of funding, which could begin to challenge business models. At the same time, we are starting to see signs of economic growth, which could be a positive other businesses positioned to take advantage of emerging growth opportunities.

“At the moment the market really likes growth stocks, but in that space we’ve seen growth stocks as expensive as they’ve been for over a decade. If you are expensive you’ve got to deliver and that was something we saw this earnings season,” he says. 

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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