As reporting season grinds towards its inevitable conclusion, many income investors will be dusting off their desk calculators to get a clearer picture of the dividends they can expect.
Analysis of company dividends reported so far indicates that the cheques headed your way will be roughly the same as last year.
Such analysis, however, does not take into account the stocks you own and smaller interest payments from cash accounts, not to mention the increasing cost of health insurance and utilities. All of which contribute to a much bleaker outlook.
According to AMP Capital's head of investment strategy and chief economist, Shane Oliver, around 92 per cent of companies have maintained or increased dividends at this point, which on the face of it is very good news.
Bigger than expected dividends from the likes of Fortescue and JB Hi-Fi are prime examples.
However, many experts believe that this trend can't continue. With costs already slashed to the bone and payout ratios racheted up to record levels, companies will need to generate organic growth to deliver in the future.
Perpetual's head of investment strategy, Matthew Sherwood, says many large-cap companies are running out of tricks to keep yield-hungry investors happy.
"Reporting seasons in Australia for the last three years have generally been about cost out. One could argue that given our inflexible industrial relations system that corporate Australia is close to the end of that process," Mr Sherwood said.
Stealing market share
He said many analysts had pinned their hopes on revenues being upgraded by as much as 10 per cent on previous company forecasts.
"But when economic growth is running at less than half that, it's a problem because the only way you can do that is by stealing market share from your competitors" he said.
For some companies that boiled down to luck.
For investors who weren't so lucky to be in the right stock at the right time, the juicy dividend payments they were getting used to receiving have already begun to dwindle.
The most heavily impacted are investors with large holdings in BHP who had come to rely on the progressive dividend policy which was scrapped in February.
Chris Morcom, a private wealth manager and director of Hewison Private, said that the make-up of an individual's portfolio would have the greatest impact on whether they were seeing a drop in dividend income.
"If an investor didn't hold or wasn't overexposed to BHP and Woolworths, for example, then they probably didn't experience a significant drop in dividend income," he said.
Mr Morcom said the concept of being adequately diversified across not just shares but asset classes was critical to being able to generate a sustainable and reliable level of portfolio income. He also suggested now was not the time to cut and run.
"While a company like BHP or Woolworths might be under pressure now you wouldn't want to sell at the bottom of the cycle either. In fact, you may actually be better off topping up your holdings than doing the reverse," he said.
BHP's decision to scrap the progressive dividend policy in favour of a more sustainable alternative has been a good example of what is taking place in the Australian market.
Dismal 14 months
While the cut in the payment was large it wasn't too far off what had been expected with most analysts forecasting a dividend of US31c compared with the US30c that was unveiled.
Credit Suisse equity strategist Hasan Tevfik says that the dividend "miss" was indicative of what was unfolding more broadly and the risks of what might happen if Australian companies disappoint when accounting dividends.
"Companies have missed dividend expectations by around 1 per cent during the current reporting season. The downgrade is not particularly large when compared to the February, but it has capped a dismal 14 months for forecasts," he said.
Like others, he notes the concern about the ability of Australian large-cap stocks to continue paying out billions in dividends to keep local and international shareholders happy at the expense of future growth options.
"Payout ratios have increased for five consecutive years and are now at 76 per cent. Companies are obviously trying to buffer their income seeking shareholders from the current weakness in the global and Australian economies," he said.
For now, though, the relative attractiveness of the yield from Australian equities should support share prices in the face of few options elsewhere.
"While our equity market trades on one of the highest PE multiples in the world, it also offers the highest dividend yield," he said.
"Global equity investors are changing their focus away from traditional valuation metrics of profits and cash-flow towards dividends. Aussie equities should benefit if this trend continues."
