2020 brought a year of dividend cuts and suspensions. Today, income is flowing again. The big miners snatched headlines but pay-outs are increasing more widely.

When shopping for income stocks after reporting season, it pays to be careful. Attractive dividend yields can be the product of falling share prices as much as bumper dividends.

To help navigate this space, today’s Charts of the Week looks at dividend performance this reporting season, how it compares to pre-pandemic days and Morningstar’s dividend forecasts for 2022 and 2023.

A broad advance in dividends

By one measure, dividends in 2021 are recovering to the levels immediately before the pandemic.

ASX companies under Morningstar coverage returned an average dividend of 60 cents in 2021, versus 65 cents in 2019 and 56 cents in 2018. Morningstar analysts cover about 80% of the S&P/ASX 200 index (about 95% of the index by market capitalisation).

The number of companies reporting dividends in 2021 (153) is still down 6% from 2019 (164) so the recovery is being driven by bigger pay-outs among those doing so. This has helped offset the smaller number of companies paying dividends.

Of the top 10 biggest dividend payers this year, seven paid out more than they did in 2019.
Wesfarmers (ASX: WES) paid out $3.78 in 2021 versus $2.78 in 2019. Mineral Resources (ASX: MIN) increased their dividend payment more than six times to $2.55. Surging iron ore prices helped the big three miners to bigger dividends. Fortescue’s (ASX: FMG) 2021 dividends of $3.58 more than doubled its 2019 distribution of $1.14.

Look beyond dividend yield

The recovery has helped dividend yields higher, but, in several cases, record high dividend yields have been helped by falling share prices as much as bumper dividends.

The top ten stocks by twelve-month dividend yield averaged a yield of 7.76%. Fortescue Metals came in first with a whopping 11.76%.

But high dividend yields can be the result of rising dividends or falling share price. Six of the top companies by twelve-month dividend yield saw share prices slump between June and August.

AGL Energy (ASX: AGL) had the second highest twelve-month dividend yield at 10.1%, but that was in part because the share price declined a full 20% between June and August.

Between June and August, the 12-month dividend yield for Platinum Asset Management (ASX: PTM) rose 24% to 5.78%. Over the same period, the share price slumped 15%.

Historic dividend yield can be misleading and shouldn’t be the only basis for picking income stocks, says Morningstar equity analyst Angus Hewitt

“In the last 18 months it hasn't been a helpful data point and more generally it's not. It doesn't tell you anything about the sustainability of dividends, or what is likely to happen next.”

FY 2022 dividend forecasts 

Morningstar equity analysts forecast double digit dividend yields for five stocks this financial year. These figures are based on the analyst’s forecasts for future dividends.

The familiar trio of BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue top the list with yields north of 15%. Mining holding companies Alumina (ASX: AWC) and Deterra Royalties (ASX: DRR) round out the five.

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