It is very easy to enter into Google a combination of terms such as ‘best dividend yields ASX’ and see the amazing yields that come up on the screen. Chinese-owned coal miner Yancoal Australia, which or participates in nine producing coal mines across NSW, Queensland and Western Australia, comes in at the top, “offering” a dividend yield well north of 20%.
Having paid its minority shareholders $1.23 in dividends in FY22 (Yancoal uses the calendar year as its financial year). At a share price of $4.94, Yancoal Australia ‘screens’ as trading on a yield of almost 25%.
Unfortunately, there are several things that an investor bringing-up this list has to understand: that yield is calculated on the 2022 dividend, which the company may not be able to match in 2023. Yancoal Australia’s profit depends on the price at which it sells its coal, and what it costs it to produce and sell each tonne. Investors who have dug a bit deeper will see that in 2023, the company failed to match 2022’s interim dividend, paying 37 cents a share compared to 52.7 cents a share in 2022 – which puts a lot of pressure on the final dividend, to put it mildly.
So, using the current share price and the 2022 dividend amount (the ‘historical’ dividend) might not mean a great deal in terms of what dividend yield Yancoal Australia is “offering” for 2023, right now.
Dividend yield rankings have their place, and can be a handy tool for investors, but they certainly don’t tell the whole story.
Another way to look at dividends is to look at track record.
Here, some companies show up that do not often feature in dividend yield rankings; but they are dividend champions.
1. Washington H Soul Pattinson & Company (SOL, $33.14)
Market capitalisation: $11.9 billion
12-month total return: 22.6%
3-year total return: 7.3% a year
Forecast FY24 dividend yield: 2.8%, fully franked (grossed-up, 4%)
Analysts’ consensus target price: $30.65 (Stock Doctor, Refinitiv)
A case in point is investment company Washington H. Soul Pattinson and Company (ASX: SOL), which has been listed on the Australian share market since January 1903. It was originally a pharmacy business, but although Soul Pattinson is still a major pharmacy chain in Australia, it is no longer owned by Washington H. Soul Pattinson and Co. Instead, Washington H. Soul Pattinson is now a major investment company, with a portfolio encompassing many industries including telecommunications, resources, building products, retail, agriculture, property, financial services and other equity investments.
The company owns major stakes in telecommunications companies TPG Telecom (12.8%) and Tuas (25.3%), building products, property and investment firm Brickworks (43.1%), Apex Healthcare (29.6%), thermal (electricity) coal and agriculture company New Hope Corporation (39.2%), base and precious metals producer Aeris Resources (30.3%) and investment firm Pengana Capital Group (36.6%).
This portfolio of long-term “strategic holdings,” across multiple industries, and makes up just under half of the entire Souls portfolio and remains the core of its cash generation. It also has investment portfolios that are more typical of a funds management company.
If you look at SOL on the stock market, in FY23 (year ending June 30) it paid a total dividend of 87 cents a share, fully franked. At the current share price of $32.88, that represents an historical yield of 2.6% fully franked, equivalent to a grossed-up yield of 3.8%.
And on analysts’ consensus forecasts for the expected FY24 dividend yield of 94 cents, that would represent a prospective dividend yield of 2.9%, fully franked, equivalent to a grossed-up yield of 4.1%. That is quite respectable, even in a higher-interest-rate environment, but not enough to crack a ‘dividend leaders’ list.
(As with all dividend-paying shares, investors have to assess the investment on a ‘total return’ basis, of capital growth plus dividends. On that basis, Washington H. Soul Pattinson and Co. is a sound performer, showing a 12-month total return of 21.7%, and a three-year total return of 7% a year.)
But there is a very good argument that Washington H. Soul Pattinson is the ASX’s dividend champion.
That is because, on another measure, as at the FY23 result, Souls was able to boast 23 consecutive years of increasing dividends, at a compound annual growth rate of 9.6% a year (over FY22 and FY23, the compound annual growth rate in the dividend has shifted to a higher gear, at 18.5%). No other stock in the S&P/ASX 200 can show that many straight years of an increased dividend – not even those that have been, at various times, considered reliable dividend-payers.
For example, in FY18, after 11 straight years of stable or increased dividends, Telstra cut its full-year dividend, and lowered it further in FY19. From 31 cents in FY17, Telstra shareholders received just 16 cents per share in FY19.
The big banks, too, showed that dividends were not 100 per cent certain, with a series of cuts — once considered by investors as unthinkable. ANZ Bank cut its interim dividend in 2016 and slashed the level of franking in its final dividend for FY19 from 100 per cent to 70 per cent.
Westpac cut its final dividend for FY19 from 94 cents to 80 cents, its first dividend cut in a decade. National Australia Bank also bowed to the inevitable and lowered its interim dividend from 99 cents to 83 cents in 2019, its first dividend cut in five years.
Then, in the COVID-19 market crash and economic downturn, the banks (as with many companies) reacted to the drastic circumstances with savage cuts to their dividends. ANZ’s FY20 dividend was cut by 62 per cent (from 160 cents in FY19 to 60 cents); National Australia Bank’s dividend saw a 64 per cent cut (from 166 cents in FY19 to 60 cents); and Westpac’s dividend was slashed by 82 per cent (from 174 cents to 31 cents). In these circumstances, Commonwealth Bank only cutting its FY20 dividend by 31 per cent (from 431 cents in FY19 to 298 cents) was sector-beating performance.
After these bruising encounters with economic reality, even the most dedicated income-oriented investor had to admit that equity dividends cannot be considered totally reliable as an income stream.
Which is why Washington H. Soul Pattinson is a dividend star stock – even though the analysts’ consensus target price, at $30.65, is below the current share price.
2. Brickworks (BKW, $24.91)
Market capitalisation: $3.8 billion
12-month total return: 16%
3-year total return: 11.2% a year
Forecast FY24 dividend yield: 2.7%, fully franked (grossed-up, 3.8%)
Analysts’ consensus target price: $27.40 (Stock Doctor/Refinitiv, eight analysts)
It is a similar story with Washington H. Soul Pattinson’s stablemate, Brickworks.
Brickworks is a diversified group of companies operating in building products in Australia and North America (including brickmaker Austral Bricks, Austral Masonry, Austral Precast and Bristile Roofing), property development and investments, the last representing BKW’s 26.1% shareholding in Washington H Soul Pattinson. Brickworks has been listed on the ASX since 1962 and has a paid a dividend every year since.
The dividends from Soul Pattinson and its properties are powering Brickworks’ dividend higher. FY23 marks the tenth consecutive year that Brickworks increased its dividend; it has not lowered its ordinary dividend since 1976. Over the last 20 years, Brickworks has grown the full-year dividend at a compound rate of 6.1% a year.
And on the current tale of the tape, there is a good argument that Brickworks is the better buy of the two, on a potential total-return basis.
3. Wesfarmers (WES, $54.27)
Market capitalisation: $61.6 billion
12-month total return: 17.3%
3-year total return: 8% a year
Forecast FY24 dividend yield: 3.5%, fully franked (grossed-up, 5%)
Analysts’ consensus target price: $51.87 (Stock Doctor/Refinitiv, 14 analysts)
Another dividend star is Wesfarmers, the name behind several high-quality Australian brands, such as Bunnings, Kmart, Officeworks and Wesfarmers chemicals, energy and fertilisers (WesCEF).
The FY23 result showed high resilience against a difficult economic environment, as the company’s retail brands – Bunnings, Kmart, and Officeworks in particular – continue to demonstrate broad-based earnings growth, as they dominate within their categories and are beneficiaries of Australians show a more value-conscious approach to shopping.
Wesfarmers’ dividend flow was interrupted by the divestment of Coles Group Limited in FY19, but Wesfarmers has grown its annual dividend per share each year since then, as the Bunnings engine cranks up. The FY23 dividend, of $1.91 a share, is now higher than the company paid with Coles as one of its businesses.
4. Sonic Healthcare (SHL, $31.00)
Market capitalisation: $14.7 billion
12-month total return: 5.3%
3-year total return: 1.6% a year
Forecast FY24 dividend yield: 3.4%, fully franked (grossed-up, 4.8%)
Analysts’ consensus target price: $33.00 (Stock Doctor/Refinitiv, 15 analysts)
Sonic Healthcare is another star: since the global pathology, radiology and laboratory group paid its inaugural dividend – of 2 cents a share – in 1994, its annual dividend per share has never decreased, although it did spend three financial years stable at 59 cents a share, between FY2010 and FY2012. In FY23, Sonic Healthcare paid a full-year dividend of $1.04 a share.
Being a market leader in the countries in which it operates and having in particular identified Germany as its key region for growth, Sonic has a superb platform on which to build and grow; the German operation could easily grow to overtake the revenues of the Australian business. Shareholders have a good idea of where earnings (and thus, dividend) growth is coming from.
5. Shaver Shop (SSG, $1.055)
Market capitalisation: $138 million
12-month total return: 3.1%
3-year total return: 8.7% a year
Forecast FY24 dividend yield: 9.5%, fully franked (grossed-up, 13.5%)
Analysts’ consensus target price: $1.25 (Stock Doctor/Refinitiv, two analysts)
I think speciality retailer Shaver Shop is an emerging dividend star; the company has increased its dividend every year since it was listed on the ASX in mid-2016 – meaning it kept increasing during COVID-19.
Shaver Shop is a speciality retailer of male and female personal grooming products and aspires to be the market leader in “all things related to hair removal.” Its main product categories include electric shavers, clippers, trimmers, hair styling, female hair removal and men’s and women’s wet shave items. It has 116 stores in Australia and eight in New Zealand, and an online sales platform, which generated 22.7% of total sales in FY23.
In FY23, total sales were up 0.8%, to $224.5 million, but that figure is running at 34.1% higher than pre-pandemic (FY19) levels.
In terms of net profit, that was also up 0.8% in FY23, to $16.8 million, but the profit number is more than double (up 128%) the pre-pandemic (FY19) figure.
From a debut dividend of 4 cents a share in the first financial year as a listed stock (FY17), Shaver Shop has grown its payout to 10.2 cents a share in FY23.
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