How to scan for ASX dividend stocks (and the 21 stocks that make the cut right now)

How we narrowed the All Ords down to 21 companies with an above-average yield, growing dividends and a price-to-earnings of less than 20.
Kerry Sun

Livewire Markets

Stocks might feel the pressure to pay out higher dividends amid increasingly attractive savings rates and fixed income opportunities. But so far it has been quite an uphill battle.

Betashares says the Australian ETF industry experienced inflows of $4.8 billion in the first half of 2023. But a majority of inflows reflected investors pouring funds into fixed income and cash ETFs, with those products recording $3.2 billion or two-thirds of overall inflows.

August reporting season demonstrated a lot of love for companies that managed to exceed dividend expectations. A household name like Mineral Resources (ASX: MIN) rallied 8.0% on the day of its FY23 results, which declared a 70 cents per share final dividend that was 15% above consensus expectations.

Needless to say, it’s a pretty high stakes environment for dividend stocks. So what kind of parameters can investors use to filter for solid income stocks?

In the third instalment of our Stock Screening Series, we’ll introduce a set of rules to target companies that pay an above-average and sustainable dividend.

You can find out more about Factor Screening – What it is, which factors to use and our second instalment about growth stocks – down here.

The Factors

#1 Return on equity

  • Rule: Greater than 10%
  • Reason: Return on equity measures how much profit a company generates with the money that its shareholders have invested. This serves as a quality filter to ensure the company is using its money efficiently to generate profits.

#2 Yield

  • Rule: Greater than 4.0%
  • Reason: The average yield on the ASX 200 sits around 4% historically, we we don’t want any less than that - otherwise we could just buy the index. We’re looking for stocks with a dividend yield (12-month trailing) that’s not too low but the next screener will cut any that are unsustainably high.

#3 Dividend growth forecast

  • Rule: To increase
  • Reason: This metric reflects analyst expectations that the company will at least maintain, if not increase its dividends in the coming year.

#4 Payout ratio

  • Rule: Less than 75%
  • Reason: This provides some dividend protection should earnings fall. We don’t want to see a company that pays out every dollar it earns as a dividend only for there to be nothing left in the kitty for the future.

#5 Price to earnings ratio

  • Rule: Less than 20x
  • Reason: A basic measure that ensures the stock is not ‘expensive’

The Outcome

By applying the above parameters, we’ve narrowed the All Ords down to  21 companies.

The below table lists the companies in alphabetical order as well as their trailing dividend yield, 1-year price performance and broker consensus target price.

Ticker Name Price Dividend Yield 1-Year % Chg Target Price Upside
AMC Amcor $14.70 5.0% -16.0% na na
ANZ ANZ Group $25.70 6.0% 8.3% $ 25.77 0.3%
APZ Aspen Group $1.73 4.5% 7.1% $ 2.45 29.4%
ASG Autosports Group. $2.55 7.1% 21.4% $ 3.42 25.4%
BHP BHP Group $45.68 5.7% 17.9% $ 45.78 0.2%
CBA Commonwealth Bank $103.16 4.4% 8.5% $ 90.33 -14.2%
DDH DDH1 $0.84 6.3% -2.3% $ 0.95 11.6%
FMG Fortescue Metals $21.22 8.3% 18.4% $ 17.22 -23.2%
GQG GQG Partners $1.53 5.5% -3.8% $ 2.21 31.0%
HLI Helia Group $3.71 7.3% 36.4% $ 3.50 -6.0%
LYL Lycopodium $10.31 7.0% 47.3% na na
MQG Macquarie Group $173.22 4.3% -1.9% $ 189.37 8.5%
NAB National Australia Bank $29.68 5.4% -0.5% $ 28.31 -4.8%
NHC New Hope Corp $6.22 9.5% 6.9% $ 6.20 -0.3%
ORG Origin Energy $8.64 4.2% 47.2% $ 8.45 -2.2%
SGF SG Fleet Group $2.60 6.2% 9.7% $ 3.18 18.2%
STO Santos $7.91 4.5% -0.6% $ 9.01 12.2%
UNI Universal Store $3.60 6.1% -28.0% $ 4.42 18.6%
VNT Ventia Services $2.69 6.2% -6.6% $ 3.31 18.7%
WDS Woodside Energy $38.39 8.9% 13.8% $ 38.17 -0.6%
YAL Yancoal Australia $5.06 21.2% -21.7% $ 9.80 48.4%

Data based on 15 September close. 'Target price' reflects an aggregate of all target prices within Refinitiv’s database.

Key Stats

In terms of sector breakdown:

  • Financials: 6
  • Energy: 4
  • Materials: 4
  • Industrials: 3
  • Discretionary: 2
  • Utilities: 1
  • Real Estate: 1
  • Staples, Telcos, Healthcare, Tech: 0

Dividends: The stocks have an average twelve month trailing dividend of 6.1% (ex-Yancoal)

Performance: The stocks are up an average 7.7% in the past twelve months, slightly ahead of the ASX 200 which is up 7.6%.

  • Best performers are Lycopodium (+47.3%), Origin Energy (+47.2%) and Helia Group (+36.4%)
  • Worst performers are Universal Store (-28.0%), Yancoal (-21.7%) and Amcor (-16.0%)

Analyst Targets: Analysts appear relatively upbeat on the above stocks, with the average price target 14.5% above current levels.

The Bottom Line

The five criteria has narrowed the All Ords down to 21 stocks that demonstrate:

  • The ability to efficiently generate profits (via an ROE of more than 10%)
  • A solid dividend yield (12-month trailing) of more than 4.0%
  • Dividends forecast to grow in FY24
  • Payout ratio of less than 75% allows for some degree of dividend flexibility
  • Trading at a ‘reasonable’ multiple of less than 20

The purpose of this screen is to whittle the investable universe to a more manageable number. While the criteria may not be a picture-perfect definition of dividend (or your definition) it does provide a tight-knit list for further due diligence.

Moving forward, we'll look to run the same criteria again (in a couple of months) to see which companies make the cut, which ones fell out and how they performed.

We'll also engage some dividend-oriented fund managers to share their insights on some of the companies that make it through. 

This article was originally published for Market Index on Monday, 18 September 2023.

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Kerry Sun
Content Strategist
Livewire Markets

Kerry is a content strategist at Market Index. He writes the Morning and Evening Wraps. He is an avid swing trader, drawn to technical set ups and breakouts.

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