The next financial year could see a “new record year” for dividends as the Australian economy continues its recovery from the COVID-19 pandemic.
Recent market views taken by AMP Capital Australian equities co-portfolio manager Tom Young predict that, a “dividend boom” is on the horizon and could return up to $130 billion to shareholders.
The research is welcome news for self-funded retirees dependent on dividends to supplement an age pension as both would see a significant increase in franking credits returned to investors.
Speaking to ifa, Mr Young said iron ore minors will deliver the biggest dividends over the next 12 months.
“The banks will likely return a lot of capital but are more likely to choose the buyback route (both off and on-market buybacks) to return surplus capital,” he said.
“Between them, the big four banks and three big miners could potentially make up at least half of all dividends paid by the index over the next year. That’s how big the capital return could potentially be.
“We also see the retailers as another source of good dividends given strong balance sheets and consistently strong sales.”
Mr Young’s market views further suggest that a healthy return can also be expected for Australian equities.
“The gross dividend yield for the ASX 200 (including franking credits) is currently sitting at ~5 per cent. For many investors, a 5 per cent yield is pretty attractive compared to current term deposit rates, so we expect equities will remain well supported in the short-term,” Mr Young explained.
“Combine this with ultra-accommodative fiscal and monetary policy and we believe there is a pretty good opportunity to grow this yield over time.
“We also continue to think that franking credits are underappreciated and undervalued by investors. For these reasons we remain positive on the outlook for Australian equities.”