Which sectors can provide dividends in this environment?

Rising interest rates and a slowing economy will make earnings growth harder to come by in 2023, according to Ausbil.

However, there was still dividend potential from companies which were less sensitive to lower growth, could pass on inflationary pressures to customers and pay special dividends.

Michael Price, portfolio manager of the Ausbil Active Dividend Income fund, said: “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. Payout ratios are not stretched as many companies took the opportunity during the pandemic to reduce payout ratios and/or rebuild their balance sheets.  

“In fact, we see slightly higher payout ratios from some sectors where they have lost the ability to distribute franking credits through off-market buybacks.” 

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These included financials and general insurers where Ausbil expect double-digit growth and quality energy companies which were benefitting from the energy price surge. Dividends for resources had peaked, Price said, and were expected to be 10% lower on average.

“Looking beyond the heavy lifters in financials and resources, we expect some stronger earnings growth in quality leaders that are more immune to the economic cycle and who can pass on inflation in their business models. Some ‘all-weather’ dividend payers in the telco and health care sectors, and also in consumer staples, are expected to deliver better-than market dividend outcomes.  

“We are also expecting strong dividend performance in select real estate investment trusts (REITs) that have global logistics and warehousing businesses, and some local REITs with near fully leased commercial portfolios that have lease profiles that pass inflation on to tenants through ratchet clauses.”