Boutique fund manager, Ausbil, anticipates that in 2023, dividend growth will be flat on average, but flagged “big variances” across sectors.
“The beauty of quality, dividend-paying stocks is that they tend to perform well across the cycle,” said Michael Price, portfolio manager of the Ausbil Active Dividend Income Fund.
Mr Price believes that in the coming year, there will still be potential to capture dividends from earnings that are less sensitive to lower growth and can pass on inflationary pressures to their customers.
“There is also room to move up payout ratios and pay special dividends in the absence of off-market buybacks,” Mr Price said.
“We still have positive earnings growth for the market as a whole outside of resources, so even if payout ratios don’t increase, that will lead to an increase in dividends”.
Mr Price commented that payout ratios are not stretched as many companies reduced payout ratios or rebuilt their balance sheets during the pandemic.
“In fact, we see slightly higher payout ratios from some sectors where they have lost the ability to distribute franking credits through off-market buybacks,” Mr Price said.
In October, as part of its budget, Labor announced it intended to align the tax treatment of off-market share buybacks with the treatment of on-market share buybacks, blindsiding the market.
Looking to the future, the fund manager predicted “double-digit” growth for financials and general insurers but added that resource dividends have peaked and are likely to be 10 per cent lower on average, though select resource names are still predicted to deliver.
Mr Price added, “We are also expecting a strong dividend year in quality energy companies given the elevated prices and the current supply shock we are experiencing.”
Looking beyond the heavy lifters in financials and resources, Mr Price said Ausbil expected some stronger earnings growth in quality leaders that are more immune to the economic cycle.
“Some ‘all-weather’ dividend payers in the telco and healthcare sectors, and also in consumer staples, are expected to deliver better-than-market dividend outcomes.”
“We are also expecting strong dividend performance in select real estate investment trusts (REITs) that have global logistics and warehousing businesses, and some local REITs with near fully leased commercial portfolios that have lease profiles that pass inflation on to tenants through ratchet clauses,” Mr Price concluded.
