Buy Hold Sell: Where should you be looking for income (and 2 top picks)

The ASX yield has been stuck below 4% for years. Banks trade on elevated multiples, defensives are crowded, and what were once dependable income stalwarts now offer yields that would have looked anaemic a decade ago.

So, has income investing in Australia structurally changed? Or are we simply in the later stages of a cycle that will eventually reset?

In this episode of Buy Hold Sell, Livewire's Chris Conway hosts Peter Gardner from Plato Asset Management and Sean Roger from Perpetual to unpack what is really driving yield compression. 

Is it the commodity dividend boom fading and now returning? A sustained re-rating of banks and other large-cap defensives? The steady shift from active to passive money concentrating capital at the top end of town? Or a combination of all three?

They move beyond the headline index yield to explore where reliable income is still emerging, why mid-cap industrials and mining services are back in focus, and how to avoid the dividend traps that can turn a 10% yield into zero overnight.

Finally, each guest names one ASX stock they believe the market is underestimating over the year ahead. 

This episode was filmed on Wednesday, 25 February 2026.

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Edited transcript

Chris Conway: Hello and welcome to Livewire's Buy Hold Sell. My name is Chris Conway. The ongoing narrative in the market is that the yield on the ASX has fallen below 4%, but that belies the opportunities for those who are willing to look. 

Joining me on the hunt for yield today are Sean Roger from Perpetual and Peter Gardner from Plato. 

Is this a structural low income environment?

Pete, as I said in that opening, the yield on the ASX, it's been below 4% for some time now. So I guess the question is, are we in a structurally lower income environment or is it just a lull in the cycle at the moment?

Peter Gardner: I can take a bet both ways and say it's a bit of both. Definitely in the resources sector, we've definitely seen a lull in the cycle. We had high commodity prices in 2022 and then they've come off the last couple of years and that's caused big dividend cuts from the big iron ore miners in particular. 

But you've seen this last reporting season, BHP increase its dividends 52%, and so we're starting to see that commodity cycle turn and going back up again and we're expecting more dividends from that area of the market. As for the rest of the market, I think there is definitely a structural element. I put it down to there just being a lot of money around the world looking for good assets, especially in good markets like Australia. And so those yields have definitely come down. You see the price of CBA or a Wesfarmers - those good solid Australian stocks and they definitely seem to be structurally lower now.

Chris Conway: Sean, same question for you. Structural or just a lull?

Sean Roger: I have to agree. I think there is a bit of a combination, but I think focusing on the industrial and financial part of the market, I think it's interesting to try and unpick what's actually driven that yield compression. 

And ultimately, if you look at the overall market, it's really the re-rate in the multiples you've seen at the top end of the town. The banks, Telstra, Wesfarmers - your traditional large cap income payers. And I guess from my perspective, the drivers that have resulted in that are firstly, the operating conditions for those companies over the last 12-18 months have been relatively benign. Most of them have delivered not huge growth, but modest levels of growth. Secondly, I think we've seen an ongoing shift of money away from active to passive, and that does tend to find its way, from our perspective, towards the top end of town.

And I think thirdly, it's especially the case in the last six weeks, but those sorts of businesses that are perceived to be defensive and safe havens are really attracting a lot of capital where there's a perceived stability of earnings contrasted to some of the companies that are impacted by the AI uncertainty at the moment. So I think it's a combination of those factors. 

Ultimately, I think elements will be cyclical. I probably think it's more likely to be share prices coming down that sees the yields go up there as opposed to earnings growth accelerating. But it is hard to pinpoint what the catalyst is at the moment.

The sectors offering reliable income

Chris Conway: Sean, across the market right now where you're finding the most reliable income at a sector level and what gives you confidence in that reliability?

Sean Roger: I think it's quite challenging at the moment to find reliable income that's also at an attractive yield. I mentioned before that a lot of those big companies that are those traditional reliable income generators are trading at very low yields, given the multiple expansion. And so we tend to be looking a little bit down the market cap space and we're looking for what we call low-risk yield. And these are companies which may not be the obvious income generators, but are companies where they may have stabilising or improving earnings, a healthy starting dividend yield and a really strong balance sheet. I think the balance sheet's critical for that dividend sustainability. 

So a few things in the industrial space, even some of the cyclicals that might be coming out of the worst of the cycle or coming off the back of a big capex programme where the free cash flow starts to improve. So it's that mid cap space in the industrial area where we're seeing good yield at the moment.

Chris Conway: So mid cap Industrials for you. Pete, what about you? Where are you finding some reliable yield these days?

Peter Gardner: We're definitely a believer in diversification, so we have a portfolio across the various different sectors of the market. And at the moment, our most reliable yield generators are actually in the resources sector with that change in cycle. I wouldn't have given that answer a year ago. I'm not saying that this is going to be a five-year view on resources, but definitely at the moment it's the resource stocks because, as Sean said, a lot of those big Industrial companies are pretty expensive at the moment.

The sectors to avoid

Chris Conway: I'll stay with you. What are you deliberately avoiding right now and why?

Peter Gardner: So the sectors that we're underweight - as I mentioned, we're diversified so we do hold most sectors - but the sectors that we're underweight are generally healthcare and IT at the moment. And that's because their yields are low, but they're also not delivering the capital and we want to deliver both capital growth as well as income. 

In particular, we try and avoid what we call dividend traps. And so these are stocks that look like they've got a high yield, but they're likely to cut their dividends. And so an example in this latest reporting season is Treasury Wines and G8 Education. Both of them were sitting on yields of 10% at the end of last year, but both of them cut their dividends to zero. And so if you were looking at the historical yield and thought you were going to get 10%, you ended up with nothing unfortunately. So those are the stocks we're really trying to avoid.

Chris Conway: And in some cases, a worse share price as well, so a double hit. Sean, what about you? What are you deliberately avoiding right now?

Sean Roger: I don't want to just follow what Pete said, but it's the exact same - dividend traps. We talked of them as value traps, but it's the same situation: not being sucked in by that attractive upfront yield if there isn't that sustainability to the earnings and the dividend. 

Another example to touch on would be companies that have got structural pressure on their revenue lines. And I think you see situations here where a company might be on an 8% dividend yield, but in three years time, if the earnings have halved, it might still be on an 8% dividend yield, but the share price is also halved during that time and the dividends halved. So I agree that is one area where we always have and will continue to remain cautious.

The other, I think, would be not replacing income stability with capital risk. And this comes back to the multiples that some of those traditional big cap income payers are trading at at the moment. There's probably some stability in earnings and dividend there, but if you're paying 30 times PE, you're at risk of that falling back to 25 times and then your total returns come under pressure in that situation.

Dividend growth vs headline yield

Chris Conway: I think I might already know half the answer to this one, but dividend growth versus headline yield. I imagine the growth is way more important and the headline yield you're not paying so much attention to. Just talk us through that.

Sean Roger: That's spot on. I think if you had an option, you'd much prefer a dividend that's growing over one that is stagnant. But I do think it is really important when looking at a growing dividend company that's offering that, that you understand, one, what is the starting yield that you're paying, so are you overpaying for that dividend growth, and two, what's the sustainability of it? 

And when we look at sustainability, it comes down to a few things. One is, what's the underlying earnings sustainability within that or driving that dividend? The second one is what's the payout ratio? So if it's a hundred percent payout ratio, there's not much room to move there. And thirdly, it's balance sheet strength. If there's a really strong balance sheet with net cash, it's got the ability then to lean on the balance sheet to support that dividend if the earnings growth wasn't as strong as what it was. But I do think in an income portfolio, having a balance between dividend growth and stocks that have a reasonably attractive yield's important.

Chris Conway: Pete, any advances on that?

Peter Gardner: I think we try and achieve that dividend growth and dividend stability at the portfolio level, as opposed to the individual stock level. It's pretty hard to find a stock on a decent yield that's going to be perpetually growing that yield. I guess that's the holy grail of income investing, which you rarely get. 

So we try and have some stocks in our portfolio which are on high yields, but we know aren't necessarily going to grow that much and yet have other areas of the portfolio on lower yields that are potentially going to provide that capital growth. And that's trying to achieve our dual objectives of both delivering higher income, as well as growing our capital so those dividends can grow over time as well.

Chris Conway: Just one without notice, Pete, how far out do you look for that potential dividend growth? Are you looking 2-3 years or 5-10?

Peter Gardner: Fairly short term. So probably the next 12 months.

Chris Conway: Same with you, Sean? 

Sean Roger: The shorter the timeframe that you can have, where you can see that dividend growth coming, the higher the confidence you can have that it's there.

Chris Conway: Sean, I'll stay with you. One income idea for 2026 that you think the market might be underestimating.

GPT Group (ASX: GPT)

Sean Roger (BUY): I'm going to go GPT Group, which is an owner and manager of assets across the retail office and logistics space. What really interests me about GPT is the company's had a management refresh over the past 24 months, and it hasn't just been CEO and CFO. It's been across the broader investment team as well. And we rate the new team highly and think the strategy they're implementing, of really moving from a passive asset owner to an active asset owner that's using the balance sheet and the assets on the balance sheet to seed the funds management vehicle, is a really interesting pathway that they're on. The assets themselves are performing really well, we saw that in their latest result. And we think that there's a pretty good outlook there for the retail in particular assets to continue generating good growth.

The stocks sold off over the past two or three months on the back of the shift in interest rate expectations in Australia. And we think that offers a really interesting entry point into the stock. It's got a really strong balance sheet to buffer against that higher interest rate outlook, but also its average cost of debt at the moment is still quite high. So they don't have the same headwinds there. From an income perspective, it's on about a 5% yield. We do expect that to continue growing and it's trading at about a 10% discount to NTA. So that one looks pretty good moving forward.

Chris Conway: So GPT Group for you. Pete, bring us home. What's one that you think is being underestimated by the market?

Monadelphous Group Ltd (ASX: MND)

Peter Gardner (BUY): I mentioned mining and resources before. We think the mining services area of the market is one that's generally under-appreciated at the moment. Now, this is an area of the market that is fairly risky. They can mismanage projects, overbid for a project, and then end up blowing up and costing the share price 30%. And that's what's often happened.

But we think in the current market, there's a bunch of mining service companies that are really well managed, that are doing really well. Obviously, the mining sector is booming at the moment, and so there's a lot of projects out there. And so the one I'll pick in particular is Monadelphous at the moment. It just reported, had about a 30-40% increase in profit, increased its dividends almost 50%, so it was really strong. It's appreciated a fair amount, but it's still looking good value.

Chris Conway: There you have it, ladies and gentlemen, where to look for income in 2026, as well as some places to avoid and a couple of stocks for the watch list. If you enjoyed this episode of Buy Hold Sell, make sure to give it a like, and don't forget to follow our YouTube channel. We're adding lots of great content every single week.