As interest rates have fallen forcing investors to look for yield in risk assets, income has been re-rated versus growth. We believe this re-rating of income generating assets has run its course. Low growth, mature share markets like ours are looking expensive relative to others with stronger growth prospects. You can see this from the recent underperformance of the ‘magnificent seven’ leaders: the banks, Woolworths, Wesfarmers, and Telstra. Having led the bull market since the GFC, they now appear to have rolled over. The companies have responded to these pressures by pushing up payout ratios and returning more earnings to shareholders. Investors should consider the growth they can expect in dividends from here, in many cases the dividends might be at risk. One bank, in particular, is prepaying tax to frank its dividends; this is also unsustainable. The sustainability of dividends is clearly a question all investors should be examining closes. Some companies are paying out too much and re-investing to little.


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