Where to allocate for dividends: Ausbil

The dividend outlook for Australian equities in FY23 is looking more challenged than before, according to Ausbil.

Dividends income had regained their losses since the COVID-19 pandemic but earnings growth was expected to be varied going forward as sectors adjusted to higher interest rates and stockmarket falls across developed markets.

The ASX 200 had lost 7.7% since the start of the year to 13 September while the S&P 500 had lost 14.3% over the same period.

It was therefore important to be invested in sectors that were less exposed to a potential slowdown and able to maintain their profit margins. This included companies in defensive sectors such as consumer staples, energy and quality growth businesses which were unaffected by the business cycle.

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Michael Price, portfolio manager of the Ausbil Active Dividend Income fund, said: “We expect quite low growth in dividends [from the current high level] overall in FY23. Industrial companies and financial companies with pricing power and inelastic demand are likely to be able to increase their dividends.

“Resource dividends are likely to fall by 10% or more in FY23 [from elevated levels] based on current commodity forecasts, according to Ausbil analysis.

“Modest growth in dividends is expected from the banks, but this is dependent on interest rates increases not sending the Australian economy into recession.”