Playing The Yield
Money Magazine Australia|May 2019

Investors are enjoying a $30 billion bonanza but they need to choose their stocks carefully to keep up their future income

Mark Story
Playing The Yield

At face value, the higher the dividend a stock pays the better it is. After all, it means more money is paid to you as a dividend cheque or more shares are distributed to you by way of a dividend reinvestment scheme.

But where investors often come unstuck is in assuming that a dividend of, say, 6% is indicative of a company’s future earnings (or yield), when it could be eroded by one-off events, surprise announcements, poor earnings or due to a falling share price (aka a yield trap).

The recent spate of abnormally high dividends is due to a flurry of stocks, including Fortescue Metals, Rio Tinto, South32, Telstra, Wesfarmers, Caltex Australia and BHP, issuing special dividends or buybacks. Most of these special dividends can be attributed to federal Labor’s plans to take a blowtorch to franking credit refunds (worth around about $5 billion annually).

Thanks largely to special dividends and buybacks, CommSec expects total dividends paid to shareholders for February to June this year to be around about $30 billion (ex-banks), up by more than 33% on the February 2018 reporting season. Admittedly, it’s worth hunting for companies with cash war chests or hefty franking credits – with which to make future special dividends – but John Christou, senior investment adviser at CommSec, warns investors not to get used to them.

An extended season of special dividends, as companies move imputations off balance sheets, will eventually unravel. However, given the imponderables surrounding Labor’s plans to remove franking credit refunds, Denis Donohue, of Pentalpha Investment Management, says it’s not a foregone conclusion that companies will hurriedly move imputations off-balance sheets.

Dividends stack up regardless

Esta historia es de la edición May 2019 de Money Magazine Australia.

Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.

Esta historia es de la edición May 2019 de Money Magazine Australia.

Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.

MÁS HISTORIAS DE MONEY MAGAZINE AUSTRALIAVer todo
An outrageous, beautiful monopoly
Money Magazine Australia

An outrageous, beautiful monopoly

Telstra's mobile business is a cash machine with few competitors, giving it the highest returns in the world.

time-read
4 minutos  |
July 2024
Drop the anchor to judge value
Money Magazine Australia

Drop the anchor to judge value

Buying and selling decisions should be based on where a stock price is going, not where it has been.

time-read
3 minutos  |
July 2024
Powering the AI boom
Money Magazine Australia

Powering the AI boom

Beyond the software and chipmakers, where will the energy come from?

time-read
3 minutos  |
July 2024
Get into life
Money Magazine Australia

Get into life

Tucked inside super are products that can protect you from life's inevitable uncertainties.

time-read
5 minutos  |
July 2024
Paths to home ownership
Money Magazine Australia

Paths to home ownership

Taking the road less travelled can sometimes deliver unexpected benefits.

time-read
5 minutos  |
July 2024
Sold! Quick ways to add value
Money Magazine Australia

Sold! Quick ways to add value

Small, strategic changes can have a big impact on the look and feel of your home. And get you a better price on auction day.

time-read
5 minutos  |
July 2024
Money lessons the kids need to know
Money Magazine Australia

Money lessons the kids need to know

Your children can learn a lot from your past money mishaps. Here are eight financial conversations I have had with mine.

time-read
4 minutos  |
July 2024
Property-investing rules: are they likely to change?
Money Magazine Australia

Property-investing rules: are they likely to change?

The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.

time-read
3 minutos  |
July 2024
What's love got to do with it?
Money Magazine Australia

What's love got to do with it?

A rollercoaster of emotions could be driving poor crypto behaviour.

time-read
3 minutos  |
July 2024
Are we ready to be cash-free?
Money Magazine Australia

Are we ready to be cash-free?

Saying goodbye to our piggy banks too soon could leave small businesses in the dark when problems arise.

time-read
2 minutos  |
July 2024