Australians are heavily reliant - dividends

Nicholas Forsyth

Market Matters

Australians are heavily reliant - dividends. Investors are clearly becoming concerned that weakening global economies will lead to the world's big banks being hit with a significant jump in problem loans. Banks have recently reached yields of about 6% fully franked compared to negative real returns on cash held on deposit. Let's remember that over recent years, approximately 50% of the return from Australian equities has come from dividends. On balance, I believe that there are currently significantly greater risks in holding the likes of BHP and RIO, who have no control over the price of iron ore nor what will happen in China, than the Australian big 4 banks. I currently see no problem in holding high quality, domestic yield stocks over coming years as a central pillar of a well-balanced investment portfolio. Europe is illustrating that it is likely to take another 5 to 10 years to fully recover from the GFC and hence we should expect lower rates for longer. This all leads me directly back to investing in these high yield stocks. (VIEW LINK)


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