How Ooshies, copper & petrol bankrolled an ASX dividend comeback

Since 2022, Australian income investors have been living through a quiet dividend recession. Falling commodity prices meant the big resource companies (long a mainstay of Australian equity income) kept trimming payouts.

But the August reporting seasons has broken the drought.

The total dollar value of dividends declared this reporting season in the Plato large cap universe was up 13% on the corresponding season last year.

On our data, some 66% of companies raised their dividend, 10% held flat and just 24% cut.

Just as important is the shape of the recovery. The domestic companies that carried income portfolios through the lean years kept delivering – and the commodity companies have now rejoined them.

But a 13% headline hides plenty of detail, so here are the hits, the misses, and the traps income investors should know about. 

Gold and copper: the standout hits

Gold was the star of the season. A couple of miners paid maiden dividends, and the established payers went hard: Regis Resources (ASX: RRL) lifted its dividend by 300%, Westgold (ASX: WGX) by 233%, while Perseus (ASX: PRU) and Evolution (ASX: EVN) posted high double-digit increases.

Copper was nearly as good, courtesy of the AI build-out driving the copper price higher.

Sandfire Resources (ASX: SFR) re-instated its dividend. BHP (ASX: BHP) lifted its payout by 49% (the slide says 51%- probably depends on the currency rate used but should be consistent) and Rio Tinto (ASX: RIO) by 30%.

That BHP number deserves a second look. 

Copper now generates 54% of the company’s earnings – comfortably more than iron ore. The Big Australian is now, first and foremost, a copper company, and that’s what funded the dividend increase.

Iron ore misses, lithium returns

Iron ore was the one disappointment in resources. The price is down on where it sat 12 months ago, and Fortescue (ASX: FMG) – the purest iron ore exposure among the majors – cut its dividend by 23%.

Lithium went the other way. With the commodity price up strongly over the year, Mineral Resources (ASX: MIN), IGO (ASX: IGO) and PLS (ASX: PLS) all reinstated dividends they’d suspended a few years ago. That’s three names back on the income roster.

Banks: as good as it gets

Commonwealth Bank (ASX: CBA) looked fine in the rear-view mirror. Full-year profit up 7%, dividend up 4%, margins strong. But the problem is what’s coming. 

Since the budget (Plato Managing Director Dr Don Hamson has written about this extensively) CBA’s mortgage application volumes have fallen around 17%. The other majors are down anywhere from 12% to 20%.

The pain is concentrated in investment loans – which happen to be the higher-margin part of a bank’s lending book.

The majors’ huge back books mean this won’t hit profits immediately. But the growth outlook has clearly deteriorated. Bank dividends look stable – and stable may be as good as it gets from here.

A consumer split down the middle

The cost-of-living crunch is producing two very different consumers.

Anything exposed to housing had a rough season, particularly from July onwards. JB Hi-Fi (ASX: JBH) through The Good Guys, Harvey Norman (ASX: HVN ) and Nick Scali (ASX: NCK) all flagged softer sales as housing activity fell away after the budget.

JB Hi-Fi is fighting on a second front too: the AI build-out has pushed up chip and memory prices, and that is flowing through to the retail price of iPhones, iPads and laptops.

The supermarkets, meanwhile, are having a lovely time. Coles (ASX: COL) and Woolworths (ASX: WOW) both grew profits by around 16% and lifted dividends by a similar amount. Woolworths’ Ooshies campaign has clearly worked, with sales momentum carrying into July and August.

Ampol: the payout of the season

Ampol (ASX: ALD) produced the numbers of the season: profit up roughly 370%, dividend up 363% on last year.

Annualise that dividend – which you probably shouldn’t – and Ampol sits on a gross yield over 10%, while paying out just 50% of earnings. That tells you how cheap the stock is at current refining margins.

Nobody expects those margins to last. But the forces behind them are real: Ukrainian strikes on Russian refineries, the Middle East conflict disrupting supply, and China exporting less refined product than it used to. Viva Energy (ASX: VEA) is benefiting from the same dynamics.

The traps that still snapped

A strong season is not a safe season. There are always traps.

Companies reporting in US dollars were forced into cuts by the stronger Australian dollar. Endeavour Group (ASX: EDV) cut as Australians keep drinking less alcohol. Beach Energy (ASX: BPT) showed that even in a good year for oil, some producers struggle – it slashed its dividend by two-thirds. And packaging group Orora (ASX: ORA) trimmed its payout by around 20%.

The encouraging part is our dividend cut model, aggregated across the whole market, is currently sitting below its long-term average. In plain English, the probability of cuts from here is lower than normal – which is consistent with the strong increases we’ve just seen. Going forward, we’re positive on dividends.

The takeaway for income investors

All-in-all it’s a great time to be investing in Australian equities for income. But the key point to come out of the August reporting for income investors is the dividend base is broadening, beyond the banks and into gold, copper, lithium, supermarkets and refiners.

This just further reinforces the old adage– the only free lunch in investing in diversification.

The Plato Australian Shares Income Fund is highly diversified and highly active strategy which allows us to move in out of stocks and sectors based on our forward-looking quantitative and qualitative analysis. 

On top of this our tax-effective portfolio management is designed to maximise returns for Australian retirees and other low tax investors. 

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