Dividend turnaround - boost for income products


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Dividend payouts from listed Australian shares are returning to normal and are competitive against term deposit rates.

After coming under pressure from the global financial crisis, corporate balance sheets are being restored and it is a great time for investors to consider moving back into Australian shares, says Scott Bennett, portfolio manager at Russell Investments.

Bennett says the latest reporting season saw an increase in dividends for the first time in 12 months, with the majority of companies delivering dividends in line with or better than market expectations.

an end to the bull

This is a welcome relief from the previous two reporting seasons where many companies cut their dividends to conserve cash.

The banking sector increased dividends the most, up 32 percent over the previous record. Many resource companies resumed dividends as well, signalling renewed confidence in commodity and energy prices.

Bennett says dividend yields are currently performing better than 90-day bank bills. The Australian market is currently yielding a gross of 5.5 percent (including franking credits) based on IBES consensus forecasts compared to 90-day bank bills which are currently yielding 5 percent.

The Russell Australia High Dividend Index, an index that is representative of a high-yield strategy, is currently yielding above the market average at 7.2 percent; gross based on IBES consensus forecasts.

Bennett says that as a result of better dividends, there will be a rise in income-based investments as sharemarkets head into a low-growth phase.

"A greater proportion of investors' total returns could be driven by income dividend," predicts Bennett.

Watch out for some of the new income-producing products.

Russell has launched the Russell High Dividend Australian Shares exchange traded fund on the sharemarket, plus a multi-manager income fund called the Russell Australian Shares Enhanced Income Fund, which screens companies for their high, ongoing dividends and franking credits.

The companies generally exclude resource companies and others that have high leverage or deficient cash flow.

Ipac has launched its Income Generator product (see awards page 64 for Best Innovative Investment Product).

Russell also has the Australian Bond Income Fund which allows investors to take advantage of the attractive yields on local bonds while invested in defensive assets.

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