Criterion: Don't horse around with the Magnificent Seven dividend stocks this reporting season
• Led by the CBA, the 'Magnificent Seven' account for half of all dividends paid
• Investors should avoid swapping growth thoroughbreds for high-yielding donkeys that won't last the distance
On the cusp of the August profit reporting season, dividend yield chasers are mulling the top stocks likely to impress with their payouts.
This year, they will need to look harder. Combined with elevated share valuations, subdued earnings are likely to diminish the appeal of the dividend faves.
Historically, Australian investors have not looked too far in their quest for income. Of the ASX200 stocks, a mere seven account for half of all ASX dividends in 2024.
For the record, they are the Big Four banks, BHP (ASX:BHP), Fortescue (ASX:FMG) and Woodside Energy Group (ASX:WDS).
(This Magnificent Seven shouldn't be confused with the top US tech stocks which share the same nomenclature).
The top dividend payer, the Commonwealth Bank (ASX:CBA) yields a sub-par 2.5% after its monstrous share run.
The top 100 stocks account for 97% of the ASX200 index dividends.
The average pre-tax yield has fallen to 3.2%.
This compares to the historic run rate of 4.5% over the last ten years and 4-6% over the last five decades.
"Airbag" protection
The manager of Ausbil's active dividend income fund, Michael Price cautions that chasing dividends should not come at the cost of losing capital.
With that in mind, the fund positions itself to capture the best dividends from events such as the upcoming reporting season, 'rather than passively buying and holding for a long time'.
Atlas Funds Management's Hugh Dive counsels investors to pay close attention to capex requirements: companies needing to replace or upgrade assets won't be going on a dividend spree.
Companies exposed to the US are likely to be preserving funds, given the 'what will Donald do next?' uncertainties.
But Dive says dividend-paying stocks provide 'airbag' protection in a downturn: when yields become high enough, investors will jump back in.
Don't bank on the banks
Price says of the banks: 'I don't see much dividend growth coming over the next two or three years.'
That said, the CBA remains the fund's biggest holding, as it's the next Big Four bank to pay a dividend (the others have a September 30 balance date).
Ausbil's preferred Big Four bank is the runt of the litter, the Australia and New Zealand Banking Group (ASX:ANZ).
But Price believes there's better value in Macquarie Group (ASX:MQG), which pays a lower div than the Big Four but makes up for this with its superior growth potential.
'It's always hard to know exactly where Macquarie will make its money, but it is a well-run business that benefits from volatility," he says.
Insurers offer premium yields
Price says domestic insurers such as Suncorp Group (ASX:SUN) and Insurance Australia (ASX:IAG) continue to post strong premium growth whilst managing claims pressure.
The same applies to the listed health insurer Medibank Private (ASX:MPL) and NIB Holdings (ASX:NHF).
Ausbil has also got back on the old dividend warhorse Telstra (ASX:TLS), given more rational competition in the mobile sector.
Price cites the 'quality end' of discretionary retailing: stocks such as JB HiFi (ASX:JBH), or the nation's biggest car yard, AP Eagers.
But for the first time in years, Ausbil won't be riding into the reporting season with dividend faithfuls Woolworths (ASX:WOW) and Coles Group (ASX:COL).
These grocers have been stabled because of competitive pressure (read Aldi), regulatory scrutiny over profit gouging claims, management upheaval and elevated capital spending.
Sonic booms on pathology demand
Atlas's Dive nominates Sonic Healthcare (ASX:SHL), the world's biggest pathology provider trading on an approximate 4.5% yield.
Sonic benefits from an older population and one of the few companies genuinely likely to benefit from AI.
Unlike other health companies, pathology providers don't have to spend a poultice on R&D.
At the smaller end, Plato Investment Management's Peter Gardner likes Ventia Services (ASX:VNT), which manages infrastructure and public assets.
In December the competition regulator took the company to task over defence contracts, but the company seems to have weathered the storm.
Ventia yields round 5%.
Digging up dividend delights
Despite their earnings being subject to volatile commodity prices, the miners are cementing a new reputation for reliable dividends.
Given the resilient iron price, the payouts from BHP, Rio Tinto (ASX:RIO) and Fortescue could pleasantly surprise.
Fortescue's dividend capacity is bolstered by the $1 billion-plus it won't spend on two ditched hydrogen projects.
Price notes BHP paid an interim div one-third of that of two years ago. But the miner's final payout should equate to an attractive yield (of around 3.5%, before franking).
So not all of the Magnificent Seven posse should be run out of town.
For the gold miners, cash is flowing in like rivers of – er -gold.
These days, they're more inclined to share the spoils with investors rather than chase the next El Dorado deposit.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Australian
21 minutes ago
- The Australian
Collapse in private-sector job creation as public sector surges
Private-sector job creation has collapsed as employment funded by federal and state governments soars to five times the normal rate, sparking warnings of unsustainable distortions in the labour market that are at the heart of the nation's productivity slump. Analysis of labour-market data shows that 82 per cent of all jobs created over the past two years were government-funded positions, with the private sector adding only 53,000 jobs in 2024. This marks a dramatic reversal of normal labour market trends, in which the private sector typically contributes about two-thirds of total job creation. While Jim Chalmers has ruled out discussion of industrial relations at this month's economic and productivity summit, employer groups are demanding that dysfunction in the labour market needs urgent attention. Australian Industry Group analysis shows that the historically low unemployment rates maintained since the pandemic are masking a fundamental shift in the composition of job creation, which lies at the heart of the nation's productivity slump. It warns that labour-market resilience, as shown in official unemployment data, was being supported almost entirely through government spending, leading to an excess of job vacancies in the private sector. This was unsustainable, according to the Ai Group, which also pointed to a dramatic fall in mobility rates – the frequency of workers changing jobs or roles – to a record low in 2025 that was directly linked to productivity. The analysis showed that the number of new jobs needed for the economy to maintain an unemployment rate of about 4 per cent was approximately 400,000 a year. 'Since the pandemic, this has been achieved, however, the composition of job creation has changed dramatically,' the Ai Group analysis said. 'Typically, the private-market sector accounts for about two-thirds of job creation in Australia. However, as the economy has slowed since 2023, private-sector job creation rates have collapsed. 'In 2024, the sector only added 53,000 new jobs – about a fifth of its normal level of job creation. In its place, two government-supported sectors took up the slack. 'Employment in these government-supported sectors has boomed since the pandemic, adding an additional 670,000 jobs over the last two years. This is over five times higher than the normal growth rate, and ultimately accounted for 82 per cent of all job creation in Australia. 'It was driven by significant uplift in public-sector staffing levels, as well as the rapid expansion of the private-sector (but government-funded) care-economy workforce. One of the Albanese government's key election boasts was its maintenance of low unemployment and job creation. But the bulk of those jobs have been in the public sector (where workers are directly employed by government), and the non-market sector (industries such as healthcare and education) which are driven by government funding decisions. 'Job creation has become unsustainably dependent upon government spending,' the Ai Group research said. 'Growing regulatory burden has raised the costs of private sector employment generation. Job mobility rates have rapidly declined, while excess vacancies and skills shortages have disrupted business operations and efficiency.' The public sector was the least productive part of the economy and, with public spending showing signs of easing, unemployment rates have begun to rise. Last month, the jobless rate surprised experts by jumping from 4.1 to 4.3 per cent. This prompted economists to call for the central bank to lean in further on interest-rate cuts, following its surprise decision last month to keep them on hold, to protect the economy. Ai Group chief executive Innes Willox said the historically low headline unemployment rate had created a 'blind spot to labour-market trends that are decreasing our productivity, our wellspring to national wealth'. 'While the labour market has remained resilient, with the jobless rate around 4 per cent for the past three years, in many other respects it is failing to meet the broader needs of our economy or productivity,' Mr Willox said. 'There are four key areas that are a material drag on productivity: job creation has become almost entirely dependent on government spending; a growing regulatory burden has increased private sector costs; there is a persistent overhang of excess job vacancies; and mobility is declining. 'These all make job creation more expensive and difficult, reduce the efficiency of matching jobs to employers, while disrupting productivity and sapping business growth.'' Mr Willox said there was an urgent need for the private sector to resume its role as the primary job creator 'or our labour market resilience will be at risk'. 'Regulation has pushed up employment costs since the pandemic, with growth in superannuation, workers compensation and payroll tax adding $14bn to the annual wage costs,' Mr Willox said. 'The regulatory costs for employment, on top of wages, have grown to 15.6 per cent from 14 per cent in the past three years. 'We have a plague of excess job vacancies, which disrupts business operations, make it harder to allocate resources properly and less likely to pursue new opportunities for growth.' Mr Willox said the intervention by governments to prop up job creation through their budgets had starved the private sector with about 330,000 jobs remaining unfilled at the beginning of 2025. This was 100,000 more than the historical average. 'This persistence of excess vacancies has exacerbated a further challenge for employers: a crippling skills shortage,' Mr Willox said. 'The sectors with the most chronic shortages – healthcare and social – also delivered the worst productivity outcomes, so there is a clear link between the two.' Mr Willox said the issue needed to be a central piece of the productivity debate at the Treasurer's roundtable this month. Nation A massive pro-Palestine protest brought Melbourne to a standstill as activists clashed with riot police, harassed officers, blocked traffic, and targeted fashion brand Zara – defying Premier Jacinta Allan's warning of swift action. Nation The PM's energy infrastructure tsar and a pro-renewables independent are worried concerns about one of Australia's largest proposed solar farms are being ignored.
ABC News
6 hours ago
- ABC News
Algal bloom recreational fishing response includes plans for artificial reef and reservoirs
A new artificial reef will be created off the South Australian coast to help the state's recreational fishing sector battle the ongoing impacts of the algal bloom "disaster", the state government says. The government said it was also looking to open more of the state's reservoirs for freshwater fishing "where consistent with public health advice", and boost fish stocks in reservoirs and lakes to take pressure off the marine environment. The bloom is devastating some of the state's commercial and recreational fisheries, as well as hitting parts of the economy that rely on them, such as regional tourism. The government today unveiled measures to support recreational fishers, with short-term funding of $200,000 for Recfish SA to bolster community participation initiatives, such as fishing lessons and competitions. Recfish SA's executive officer Asher Dezsery said fishing and tackle shops were desperately in need of stimulus. "They've had sales collapse by up to 70 per cent so they really need not handouts but feet through the door, they need boots on the ground, they need customers," Mr Dezsery said. The funding forms part of the state and federal governments' $28 million support package, with $300,000 to be spent on installing an artificial reef somewhere in Gulf St Vincent. "The idea of re-establishing reefs as soon as we see this bloom pass is a really important one," SA Environment Minister Susan Close said. "The faster we can help nature restore, the faster we can accelerate that recovery, the faster we'll all be able to move past the experience of this bloom and also make ourselves more resilient in the event that it returns." SA Premier Peter Malinauskas said recreational fishers were feeling the economic effects of the bloom — which he described as a "natural disaster" — even in regions that had avoided environmental impact. "The algal bloom has impacted around about 27 per cent of our coastline, which means 73 per cent of our coastline remains completely unaffected," Mr Malinauskas said. "There are whole regional communities that are underpinned by recreational fishers who book an Airbnb and go to the pub and go to the cafe and restaurant, buy equipment from the local fishing tackle shop. South Australia has several artificial reefs, and it is understood a precise location for the new one has not yet been decided. Recfish SA has strongly backed the proposal, and the government believes it will boost fish stocks and allow "real-time monitoring" of the environment by researchers and citizen scientists. "We know that artificial reefs, from interstate projects, 100 per cent assist fish stocks in recovering. They also create biodiversity," Mr Dezsery said. According to the Department of Primary Industries and Regions, recreational fishing is already permitted in several of the state's reservoirs. Recfish SA said the government was looking to expand that further, including in regional areas. "Wherever there's water, wherever there's reservoirs, council stormwater catchments — any body of water, we're trying to create freshwater fishing opportunities so people can keep fishing without putting pressure on that marine environment." Speaking before the announcement, SA Opposition Leader Vincent Tarzia said that what had been offered to recreational fishers so far had been "completely inadequate", and he issued his own call for reservoir fishing. "There are a number of things that the government could be doing to help the recreational fishing space — one of them, for example, is the government could be doing things like stocking fish and allowing some of our reservoirs, where it's safe to be done, to be fished in," Mr Tarzia said. "That would add significant value in the recreational space." Mr Tarzia has also suggested tourism vouchers, like those that were made available in the wake of the 2023 River Murray floods, could be handed out to encourage regional travel. "Any sort of stimulus that could be allowed for that sort of area would certainly be welcome."
AU Financial Review
7 hours ago
- AU Financial Review
Auction clearance rates strong as buyers ready for next rate cut
Nick Lenaghan edits the property section, which covers all aspects, from residential real estate and housing and construction to commercial property – office, retail, industrial – and major ASX-listed developers and real estate investment trusts.
