Who is paying Australia's juiciest dividends?


Which companies will pay the best dividends over the next year? Banks, insurance companies and good old Telstra are still at the top of the list.

Morningstar's equity analysts forecast dividends for the banking sector for 2017 will be 9.5% gross with franking (6.6% net dividend) while the forecast for Telstra is 8.2% (5.8%) and the insurance sector is 7.4% or 5.3%.

Always take franking credits into account. For example, Westpac shares have a yield of about 6%, but adding franking credits increases that to 8.5%.


At a time when cash rates sit at 1.75%, term deposits and bonus accounts pay about 3%, thank goodness for dividends from Australian shares. Morningstar says the Australian sharemarket will pay a gross dividend yield of 5.2% in 2017 or a net dividend yield of 4.1% Carolyn Holmes, director of equity research at Morningstar Australasia, told the annual Morningstar conference that the research house is fairly conservative in its estimates.

Holmes says that other good yielders are media and leisure stocks, diversified financials, utilities as well as retail, food and beverage companies (see table below).

The utilities sector has had strong price rises which hasn't been reflective of strong dividend growth, she says. For example APA Group was paying out a dividend yield of 9.7% in 2010 but Morningstar estimates this will shrink to 4.9% in 2017 while Spark Infrastructure 9.7% dividend yield in 2010 will drop to 5.8% in 2017.

But chasing dividend growth and yield stocks is not without risks, explains Holmes.

Buying shares for yield is under scrutiny with some recent savage dividend cuts. BHP slashed its dividend by 74% from US62c to US16c. Bank shares are volatile, tumbling by 17% over the first two months of 2016 but have partially recovered to around half of that. The dividend uncertainty was highlighted by ANZ's recent cut in its interim dividend from 86c to 80c, in line with the move to a more moderate payout ratio.

Holmes says that some of the high-dividend payers are highly geared and if interest rates rise they are vulnerable to even a 1% increase in the cost of debt.

What investors should look for

Holmes says that investors need to look for:

  • Strong expected dividend growth
  • Attractive forecast dividend yield and franking
  • Current price and fair value
  • Sustainable dividends per share and earnings per share
  • Balance sheet risk and be aware of the risk to dividends if and when interest rates eventually rise
Rank Sector Gross Dividend Yield Net Dividend Yield
1 Banks 9.5% 6.6%
2 Telcos (Telstra) 8.2% 5.8%
3 Insurance 7.4% 5.3%
4 Media/Leisure 7.1% 5.8%
5 Diversified Financials 6.5% 4.6%
6 Utilities 5.9% 5.3%
7 Retail/Food&Bev 5.6% 4.4%
8 Technology 5.5% 3.8%
9 REITs 5.3% 5.2%
10 ASX 200 market 5.2% 4.1%
May 9, 2016  Morningstar estimates


Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
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