A positive change is sweeping through ASX LICs - and income investors should take notice

One of my biggest frustrations with investing in Australian shares has always been the dividend calendar.

Most ASX companies still pay dividends just twice a year. I've never understood why. Your mortgage, rent and electricity bills don't arrive every six months, so why should your investment income?

For retirees and anyone trying to live off their portfolio, long gaps between dividend payments make little sense. Thankfully, that's beginning to change.

Income-focused ETFs have increasingly shifted towards monthly or quarterly distributions, and now a growing number of listed investment companies (LICs) are following suit. 

Today one of Australia's oldest and largest LICs, Argo Investments (ASX: ARG), announced it will move to quarterly dividends from January 2027 - along with a record dividend haul.

It may sound like a small administrative change, but it's an important step for an industry adapting to the needs of an ageing investor base.

Why quarterly dividends matter

Dividend yield has traditionally been the headline number for income investors, but the frequency of those payments is becoming almost as important.

As more Australians transition into retirement, investment portfolios are increasingly expected to replace a regular pay cheque. Receiving income every three months instead of every six months makes budgeting easier and reduces the need to sell investments simply to cover everyday expenses.

The reality is that few people experience a perfect working life before retiring with more than enough savings. Both accumulators and retirees draw on their portfolios to bridge spending gaps, making reliable cash flow increasingly valuable.

Recognising that shift, the 80-year-old Argo, with a market cap of ~$7 billion, says it will begin paying dividends quarterly from January 2027.

"This will provide shareholders with more regular income to help meet the evolving needs of many households, while also making Argo more attractive to new shareholders," managing director Jason Beddow said.

More than just more frequent payments

Perhaps the more significant announcement wasn't simply moving to quarterly dividends.

Argo also told shareholders to expect fully franked dividends totalling 40 cents per share over the coming year, or 10 cents each quarter.

Providing investors with that level of visibility is still relatively unusual in the Australian market, but it should become far more common. Most people know exactly what to expect from their salary or pension each month - why shouldn't their investment income be just as predictable?

"Many shareholders are now seeking more consistent income to meet their cash flow needs, including utilities and other household bills," the company said.

Beddow noted the 40-cent annual dividend represents a record payment for Argo, with shareholders also able to reinvest their dividends four times each year through the company's dividend reinvestment plan.

A broader trend across the LIC sector

According to Affluence Funds Management Portfolio Manager Daryl Wilson, Argo isn't alone.

He says many LICs have spent recent years strengthening their dividend reserves, allowing them to maintain or even grow distributions through periods of weaker markets.

"Many LICs have grown dividends and/or moved to more regular dividend payments," Wilson said in his column for our Listed Series this year.

"Most LICs now pay more consistent and higher dividends than equivalent ETFs."

That ability stems partly from the unique structure of LICs, which allows them to retain earnings and build profit reserves during stronger years before distributing those profits more steadily over time.

Strong performance supports the move

Argo's decision follows a strong financial year.

The company generated $260 million in profit, while its net tangible assets grew 8.7%, comfortably outperforming the benchmark's 6.1% return.

Its fully franked annual dividend rose to a record 38.5 cents per share, producing a grossed-up yield of around 6% based on the company's most recent share price. The final dividend also includes a 5-cent LIC capital gains component.

The biggest contributors to performance were Rio Tinto (ASX: RIO), Macquarie Group (ASX: MQG) and Lynas Rare Earths (ASX: LYC), while the portfolio also benefited from holding less Commonwealth Bank (ASX: CBA) than the benchmark as the bank's share price retreated from elevated valuations.

TechnologyOne (ASX: TNE) was the largest detractor as software stocks were re-rated amid growing enthusiasm for artificial intelligence.

Overall, during the financial year, Argo purchased $267.1 million of investments, including new holdings and additions to existing positions, as shown in the table below.

Looking ahead

Despite the strong result, Beddow expects markets to remain volatile, particularly during the current reporting season, where investors have shown little tolerance for earnings disappointments.

He also pointed to uncertainty surrounding Australia's post-Budget economic changes, geopolitical tensions in the Middle East and the prospect of further US interest-rate increases under the new Federal Reserve chair.

One issue he believes remains unresolved is Argo's own valuation.

The company's shares continue to trade below their underlying net tangible asset value despite outperforming the market and delivering record fully franked dividends.

Reducing that discount, Beddow says, remains a key priority.

ETFs and LICs leading the way

Fortunately, investors already have a growing number of options if regular income is a priority.

Most broad-market and Australian income-focused ETFs - including the Vanguard Australian Shares High Yield ETF (ASX: VHY), Betashares Australia 200 ETF (ASX: A200) and Global X Australia 300 ETF (ASX: A300) - pay distributions quarterly, even though many of the companies they own still pay dividends just twice a year.

Cash ETFs have gone a step further, with most distributing income monthly. I recently highlighted five of my favourite cash ETF ideas for investors seeking regular income, but who also don't want the hassle of dealing with banks' constant honeymoon deals.

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Among LICs, a small but growing group has also embraced more frequent distributions. WAM Income Maximiser (ASX: WMX), Solaris Equity Income Plus Limited (ASX: SET), Whitefield Income (ASX: WHI), Plato Income Maximiser (ASX: PL8), and Spheria Emerging Companies (ASX: SEC) all pay dividends monthly, while Argo will join the growing list of quarterly payers from January 2027.