Dig deeper for high yield
But this ignores the composition of dividend payers with only 55 per cent of S&P 500 constituents paying a dividend compared with 85 per cent of the top 200 Australian companies. Fewer companies paying dividends brings down the market’s average dividend payment.
Plato’s Mr Pennell said 70 per cent of US companies that pay a dividend increased their dividend in 2018, while 5 per cent cut their dividend. One of the sectors to increase its dividend payouts was information technology, where dividends paid out rose 33 per cent.
“This was driven by names, including Broadcom, where the dividend rose 51 per cent and Visa, where the dividend rose 31 per cent,” Mr Pennell said.
Mature technology companies with established product lines and cash flows are often also reliable dividend payers.
A screen of US stocks paying decent dividends shows data storage company Seagate paying a yield of 5.6 per cent, printing and copier company Xerox paying 5.2 per cent and GPS technology company Garmin paying 2.6 per cent.
Multi-nationals such as the UK-listed pharmaceutical company GlaxoSmithKline also score well with a yield of 5.2 per cent as does US domiciled consumer staples company Proctor & Gamble.
Global energy companies also rate highly with Exxon Mobile yielding 4.2 per cent and the Italian power firm Enel SpA yielding 4.9 per cent.
To distribute, or not
While some investment experts criticise companies that pay higher dividends as showing signs of being a business with poor long-term growth prospects, others are less certain.
AMP Capital’s head of investment strategy and chief economist Shane Oliver is among those who believe that higher dividend payments from companies is often a good sign.
Dr Oliver said data from the US share market showed that higher dividend payments lead to higher earnings growth, which in turn drives higher overall returns.
“When companies retain a high proportion of earnings there is a tendency for poor hubris-driven investments; high dividend payouts are indicative of corporate confidence about future earnings; and high payouts indicate earnings are real,” he said in a note to clients published on Wednesday.
Dr Oliver said since 1900 more than half the total return of 11.7 per cent per annum from Australian equities has been from dividends, further underscoring the reasons why Australian investors are fond of them.
He rejected arguments put forward by some that dividend imputation creates a bias to invest in domestic equities and unfairly benefits the rich.
“This is all nonsensical as dividend imputation simply corrects a bias by removing the double taxation of company earnings,” Dr Oliver said.
He added that if the Labor policy was part of a broader winding back of franking credits, investors would have even more reason to be concerned.
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