In its active Australian equities update, SSgA said payout ratios have been climbing over the past two years, and continued their upward trend during this month.
Speaking to InvestorDaily, SSgA’s head of active quantitative equity for the Asia Pacific, Olivia Engel, said fears over the sustainability of this trajectory are souring sentiment among investors.
“They have been increasing for the past two years because earnings haven’t been doing much – they’ve been actively declining – and companies have wanted to maintain their dividend per share because the … investors in this market love their dividend,” Ms Engel said.
“As the payout ratio gets closer and closer to 100 per cent, you start to get to the point where it’s not likely that they can increase much further. It’s high by historic standards.”
Ms Engel said that companies increasing payout ratios rather than investing in capital expenditures shows the impact of global macro uncertainty.
Companies will need to pick up their CAPEX spending, which may lead to top line dividend numbers dropping, she said.
“Twelve months ago I think dividend would have been seen by the market as relief in that companies can pay out dividends … so everything is good,” Ms Engel said.
“But now, because they keep paying out dividends and not investing in the future, I think investors are starting to say, ‘Well hang on, where are companies going to grow from here if they’re not deploying any capital?’”
“I just think that with top line dividend numbers, investors need to be careful and given that payout ratios are high, it’s not likely dividends will increase there.”
