Muted 2025 outlook for earnings, dividends

Equity Trustees Asset Management has issued a subdued equity market outlook for 2025, with market earnings expected to be flat or down and dividends expected to be flaw or own.

Equity Trustees AM head of Asset Management, Darren Thompson, has pointed to the optimism being generated by the re-election of President Donald Trump in the US, but has noted that outside of the US the economic picture is less positive.

“In Australia, although we have some wonderful global businesses, economically we are more leveraged to domestic drivers and a weakening China story than the stronger US economic thematic. Domestic economic conditions are, and likely will continue to be weak,” Thompson said.

“The ASX200 index concentration in banks and resources means that earnings-per-share (EPS) growth for (fiscal year) FY25 is now likely to be flat to down on FY24 with modest growth anticipated in FY26.

“Share market strength has been driven by price-earnings (PE) multiple expansion rather than earnings growth, resulting in historically stretched valuation metrics and an arguably complacent assessment of embedded risks,” he said.

“Overall, much of the good news anticipated for CY25 appears priced into market expectations and investors should expect much more muted capital returns and flat or lower income in the year ahead,” Thompson said.

He said that aggregate earnings in FY25 for the ASX200 basket of stocks will be flat or slight down relative to FY24.

“While many sectors of the Australian market are expected to deliver earnings and dividend growth going forward. However, they are not of sufficient scale to compensate for the impact of the materials and energy sectors,” Thompson said. “The impact of these factors is such that the Australian equity markets 12-month forward dividend yield is ~3.4%, which is well below the 10-year average.”

“In aggregate, the outlook for near term earnings growth remains weak. This does not seem consistent with the current level of market optimism and as such we feel that capital returns over the next 1 to 3 years are likely to be more muted than those enjoyed in the last 12 months.”