Dividend growth flat in 2023

Oksana Patron

30 November 2022

The dividend growth will be on average flat in 2023, but there will be significant variances across sectors, according to Michael Price, portfolio manager at Ausbil Active Dividend Income Fund.

The double-digit growth in dividends would be expected across the financial and general insurers sectors and it would be a strong dividend year for energy companies, helped by the elevated prices and the current supply shock.

However, it looked like resources dividends had already peaked and the next year might see 10% lower on average dividends, although select resources firms would still deliver.

At the same time Price said he expected some stronger earnings growth in ‘quality leaders’, which were more immune to the economic cycle and could pass on inflation in their business models.

This would include ‘all-weather’ dividend payers such as the telco and health care sectors and also consumer staples which would be expected to deliver better than market dividend outcomes.

Also, the market would anticipate strong dividend performance in select real estate investment trusts (REITs) that had global logistics and warehousing businesses, and some local REITs with near fully leased commercial portfolios that had profiles that passed inflation on to tenants through ratchet clauses.

“In the coming year, there will still be potential to capture dividends from earnings that are less sensitive to lower growth and can pass on inflationary pressures to their customers,” Price said.

“There is also room to move up payout ratios and pay special dividends in the absence of off-market buyback.

“We still have positive earnings growth for the market as a whole outside of resources, so even if payout ratios don’t increase that will lead to an increase in dividends.”